Here's a look at the long-term employment trend in the United States. It is the combination of total private industry jobs and total government jobs. I have included an exponential trend line in red.
Here's a closeup look at recent years. We're having a real tough time getting back to the long-term trend line even with massive stimulus. We came up way short with our housing bubble attempt. Investors like to speak of long-term historical stock market returns. Well, here's a sixty year trend and it is clearly breaking down. I sure hope that stock market investors aren't counting on a grand employment decoupling theory to save the day.
Perhaps all we need to do is put everyone to work through government jobs. Would that do it? I wouldn't hold my breath. We seem to be bracing for the opposite, or should be bracing anyway.
State hiring curbs may chill hot market for government staff
More than half the states are experiencing budget shortfalls. Under state constitutions, most can't borrow money or run a deficit, making spending cuts a necessity. That has brought hiring limits or freezes in states from California to Maryland.
Speaking of decoupling theories, perhaps the rest of the world will decouple and go on without us.
Worry creases in textile industry
Chinese textile companies have been hit the hardest as many of them rely on exports for profits and the profit margin for most is narrow. Faced with rising raw material costs, no export tax rebate and rapid yuan appreciation, many textile manufacturers are saying this is going to be the toughest year ever.
If a lot of these labor-intensive textile companies do go under, the government will be faced with a rising unemployment rate. Official figures show the textile industry alone employs over 20 million people across China, most of whom are migrant workers.
How about a productivity miracle?
The Role of Labor Market Changes In the Slowdown of European Productivity Growth
This paper is about the strong negative tradeoff between productivity and employment growth. We document this tradeoff in the raw data, in regressions that control for the two way causation between productivity and employment growth, and we show that there is a robust negative correlation between productivity and employment growth across countries and time.
I'd say the farming industry would back that point as seen here and here. Our manufacturing industry no doubt deserves an honorable mention too. What's left of it anyway.
See Also:
Trend Line Disclaimer
Source Data:
St. Louis Fed: Total Nonfarm Payrolls: All Employees
The underlying demographics include a large "hump" of extra children (the Boomers) followed by a collapse in family size. Why would you expect to reasonably fit a steady exponential to a demographic that includes a bulge?
ReplyDeleteWho Struck John,
ReplyDeleteGreat observation and question! You might find this a bit hard to believe, but I actually agree with you a lot more than you might expect.
Why would you expect to reasonably fit a steady exponential to a demographic that includes a bulge?
First, the data does follow that trend line very closely from 1940 to 2000. I will assume you aren't trying to argue that it doesn't. I would offer that what was lost due to the demographics you talk about (and I agree with) was gained by women entering the workforce. However, it was not my intent to determine why the data was following the exponential trend line. I was merely pointing out that it did (until recently).
Second, you are very nearly hitting the point I tried to make with this post when I said...
Investors like to speak of long-term historical stock market returns. Well, here's a sixty year trend and it is clearly breaking down.
I would ask stock market investors a variant of your exact question.
Why would you expect to reasonably fit a steady exponential to a "stock market" that includes a bulge?
I wouldn't expect it! I can certainly understand the temptation though. Long-term 10%+ historical stock market returns pretty much assume that history will continue to repeat itself and that all the previous exponential trend lines continue. Well, the exponential employment trend line clearly isn't and I do not think it is a trivial event (Japan found that out the hard way).
Why Population Aging Matters: A Global Perspective
http://www.state.gov/g/oes/rls/or/81537.htm
Population aging will strain some national budgets. Countries with extensive social programs targeted to the older population—principally health care and income support programs—find the costs of these programs escalating as the number of eligible recipients grows and the duration of eligibility lengthens. Further, few countries have fully funded programs; most countries fund these programs on a pay-as-you-go basis or finance them using general revenue streams. Governments may be limited in how much they can reshape social insurance programs by raising the age of eligibility, increasing contribution rates, and reducing benefits. Consequently, shortfalls may need to be financed using general revenues. Projections of government expenditures in the United States and other OECD countries show major increases in the share of gross domestic product devoted to social entitlements for older populations. In some cases, this share more than doubles as a result of population aging.
As countries reach a relatively high level of population aging, the proportion of workers tends to decline. Some European countries, including France , Germany , Greece , Italy , Russia , and the Ukraine , already have seen an absolute decline in the size of their workforce. And in countries where tax hikes are needed to pay for transfers to growing older populations, the tax burden may discourage future workforce participation. The impact on a country's gross domestic product will depend on increases in labor productivity and that country's ability to substitute capital for labor. Less developed countries can shift their economies from labor-intensive to capital-intensive sectors as population aging advances. Options for more developed countries may be more constrained.
One more thought.
ReplyDeleteWhen investing, we have all been trained to heckle the idea that this time it is different. However, here's another quote from the link I offered in my last comment.
Since the beginning of recorded human history, young children have outnumbered older people. Very soon this will change. For the first time in history, people age 65 and over will outnumber children under age 5 (Figure 1). This trend is emerging around the globe. Today almost 500 million people are age 65 and over, accounting for 8 percent of the world's population.
I am loathe to say it. I cringe as I utter the words. This time it is different.
largest risk is oil prices until they fall or we use natural energy economy of world will keep going down
ReplyDeletestockmarketreviews,
ReplyDeleteMust we choose between largest risks when there are so many huge risks to pick from? ;)
In all seriousness, my largest risk priorities have evolved since 2004. First I thought it was debt (deflation). That lasted about a day, lol. Then I thought it was the consequences of debt (a government unwilling to embrace deflation and would devalue the currency to compensate).
In other words, I think my stagflationary long-term outlook is 100% compatible with your oil price risk. I'm a somewhat wimpy believer though (have my money in TIPS and I-Bonds, not oil) because I do fear the "until they fall" part of your warning.