By now the widely accepted groupthink on the collapsing labor force participation rate, which as we noted last Friday [9], cratered to a fresh 35 year low of 62.8% which was the main reason for the collapse in the unemployment rate to 6.7% from 7.3% two months ago, is that it was perfectly expected and is largely due to demographics. Sadly this is just another example of goalseeking a real-time variable to "fit" with a narrative of a recovery when in reality there is no recovery for the record 91.8 million Americans who have given up on work entirely and are now out of the labor force. All of this is well-known. What may not be as well known is that every two years the BLS releases medium-term (10-year) projections for the participation rate. The projections include the demographic composition of the population and the LFP rates of different demographic groups, among other statistics. And it is here that we see just how "made up" the narrative surrounding the demographic mea culpa truly is.
Presenting exhibit A: "Labor force projections to 2012: the graying of the U.S. workforce [10]", released by BLS' Mitra Toossi in February 2004. Jumping to the punchline, here is what the BLS expected a decade ago:
- Total Civilian Labor Force forecast in 2012: 162,269
- Total civilian non-institutional population: 241,604
Or, a predicted labor force participation rate of 67.2%, or notably higher than the 66.0% as of the report's publication in February 2004.
Where are we now?
- Total Civilian Labor Force at December 2012: 155,485, just under 7 million less than was expected (and this with the so-called recovery)
- Total Civilian non-institutional population at December 2012: 244,350, or 3 million more than expected.
Net: a 10 million worker delta! Does this mean that, gasp, America's demographic crunch and "Baby Boomers are retiring" meme were unknown just ten short years ago? Apparently yes. Because somehow the 67.2% expected LFP at the end of 2012 ended up being 63.6% and sliding. And the punchline - if one were to use the expected 67.2% LFP rate, today's unemployment rate would be higher than 12%!
Because here is what happened next in subsequent BLS labor force participation forecasts:
[11]
In a nutshell: lower, lower, lower as the LFP entirely not in line with forecasts, cratered. But hey, what they know now, namely that Americans can't wait to retire because they have so many 0% yielding savings, they didn't know back then.
And there you have it: when it comes to the Labor Force Participation rate, one can best summarize it by the old maxim: "We'll just make it up as we go along."
Source, ironically, St. Louis Fed: A Closer Look at the Decline in the Labor Force Participation Rate [12]