Future Employment Growth Index (Musical Tribute)

I believe that today's employment growth is being fueled to a large degree by putting people back to work. Once they are back to work, employment growth will slow considerably.

As such, I'm making an attempt here to come up with an index that can show the theoretical effect and see how this effect would compare to previous business cycles.

Future Employment Growth Index

1. There is a positive effect for a civilian labor force that is growing. As the civilian labor force grows there are more people able to work. It doesn't mean more people will work, it just means there is potential for it. The first part of the index is therefore the annual increase in the civilian labor force divided by the population.

2. There is a negative effect for an unemployment level that is falling. As fewer people become unemployed there are fewer people who could be put back to work. The second part of the index is therefore the annual decrease in the unemployed divided by the population.

3. I then combine the two effects and use a 24-month moving average to smooth out much of the volatility.

The following chart shows the results and hopefully offers some historical perspective on where we are now.


Click to enlarge.

What does it mean to be below 0%? Well, we're shrinking our unemployed faster than we're growing our civilian labor force. Clearly the employment growth we're seeing now is not sustainable. If the trend continues, we will simply exhaust our unemployment reserves and then employment growth must slow dramatically. We've done this in the past, but never to this degree (at least over the past 60 years anyway).

I really don't think "love drunk" investors will enjoy all the drama of exhausting the unemployment reserves, especially since I don't think many even realize what it would mean. It is common knowledge that the lower the unemployment rate is, the better our future economy will do. This ignores the fact that when things are as good as they can get, then things can't actually get any better. Further, things can actually get worse and often do.

I'm a start some drama
You don't want no drama
No, no drama
No, no, no, no drama

We can hope that as the labor market tightens, more people will feel compelled to join the civilian labor force again. There is therefore some hope that some of the drama can be mitigated to some degree. Yes, that's a sentence that uses the word "some" three times. Nobody can accuse me of being an optimist!

The following chart shows the 12-month moving average of the annual percentage change in the civilian labor force.


Click to enlarge.

If you can tell me where that data is headed from here then we'll both know. Let's hope it is up from these very anemic levels. I wouldn't even care to guess. I will say this though. One wonders how much of that recent decline was due to the taper tantrum and what the next tantrum might do.

October 8, 2014
Fed Worried About Triggering Another ‘Taper Tantrum’

“This likely reflects the scars from the ‘taper tantrum’ last summer,” when then-Fed Chair Ben Bernanke signaled that asset purchases might be scaled back sooner than investors expected, according to a note to clients from Bank of America Corp. Bernanke’s comments caused a jump in Treasury yields.

If I was the pilot on a cargo plane filled with expensive irreplaceable artifacts, the plane was very low on fuel, my company was optimistically pleading with me to perform a soft landing, all I could see in all directions was mountains and trees, and I was the sole person on the plane, then I would definitely consider alternatives to the soft landing idea. Performing a parachute tantrum might be one of them. But, hey, maybe that's just me, lol. Sigh.

Source Data:
St. Louis Fed: Custom Chart #1
St. Louis Fed: Custom Chart #2