Beyond Deterioration?

As I have pointed out in past posts, the ratio of total non-farm payrolls to the civilian non-institutional population serves as a very accurate general indicator of macroeconomic contraction and expansion.

Looking at the chart (click for dynamic version) you can see that peaks and troughs in this series correlate very well with the NBERs determinations of the beginning and ending of past recessions while the peak year-over-year decline has always occurred just after the end of recessionary contraction.

Looking at the latest trend in this series it’s plain to see that we are likely beyond (at least in a technical sense) the latest recession which this indicator suggests ended sometime between Q2 and Q3 2009.

If future macro trends were to follow along even roughly what has been experienced in the past, then we should be coming into some form of sustained workforce recovery.

On the other hand, it’s important to note that while the 2000s “expansion” was sustained (trough of late 2003 to peak of 2007), it was so weak as to constitute an almost entirely futile trend in the midst of a far larger and fiercely negative downward slide that started in 2000.

With the severe and worsening bout of long term unemployment, the question now is, are we on the cusp of a meaningful workforce recovery OR are we simply going to see more evidence of a structural deterioration of the labor market?

Not Participating In The Boom or The Bust!

Probably the most significant issues currently plaguing the U.S. economy are posed not by the housing market but by the job market.

In order to recognize the severity of the situation one needs to consider that since 2000, nearly a decade, our labor market has been showing significant and unusual signs of weakness.

This is not a new revelation.

The concept of a “jobless recovery” was spun precisely for the purpose of “explaining” how we could “recover” from our last decline (dot-com bust) but not in typical fashion…. a “recovery” without the jobs.

As I have stated before, I don’t happen to believe that there is such thing as a “jobless recovery”… your economy either grows in a real and meaningful way (at least trend job creation) or it doesn’t.

In the past (see the Envisioning Employment posts) I have plotted the ratio of total and private non-farm payrolls to the civilian non-institutional population (in effect factoring out growth in population) and its quite clear that the run seen since 2000 stands out as the single weakest 10 year period in the post WWII period.

Another way to look at this weakness is the “civilian participation rate” which is essentially the same as my “non-farm payroll population ratio series” except its baked off of the household survey side of the employment situation report (i.e. NOT from the establishment).

Study the interactive chart below (click and install Microsoft Silverlight (like the Flash player) if you haven’t already).

Although the period between late 1956 and late 1962 (scroll over to the left…) looks to have brought a fairly significant 1.8% decline in workforce participation (against the backdrop of a growing population of workforce participants) our current decline appears not only to be about to best that percentage, but possibly more importantly, has been experiencing this declining trend far longer.