Saturday, September 22, 2007

Employment vs. Fed Funds Rate

This chart shows the employment-population ratio and also shows the Fed Funds Rate.

The shaded area represents our last recession.

I'm using the theory that it doesn't matter why people aren't working. All that matters is that they aren't. If you think this theory has merit, then this was an extremely weak recovery. It also explains why Bernanke may have done the right thing by lowering interest rates. Further, he might have been way too late. What could he do though? The price of oil kept going up. This chart makes me slightly more deflationist in the short-term (and for those keeping score at home, I was already a bit deflationist in the short-term). I'm still stagflationist for the long-term though.

It seems we could tolerate a high Fed Funds rate in the mid 1990s. I guess we're just far too leveraged these days. Oh well!

Employment-population ratio = Civilian labor force employment / (Civilian labor force employment + Civilian labor force unemployment + Not in Labor Force)

At least that's how I'm calculating it and it seems to match the BLS's version.

See Also:
A Deflation Argument
Not in Labor Force (Musical Tribute)

Source Data:
Selected Interest Rates
Current Employment Statistics (CES)
National Bureau of Economic Research, Inc.


Anonymous said...


What I find interesting about the BLS report is that if you add all of the columns under Nonfarm employment which shows p138,037 it comes up to 247,190k.
To me the difference minus the small percent of Americans who work more then one job must indicate the emigrant work force of probably about 109,153K give or take a few.
For what ever reason I would think the columns should add up fairly close and they don't so if they don't why?

Stagflationary Mark said...


Welcome to the fun of reading government reports!

The "Goods-producing" row is actually a total of the two rows under it.

Similarly, the "Service-producing" row is a total of the rows under it. Well, not quite. It also "Includes other industries, not shown separately."

And for kicks and giggles, the "earnings" below all of that only "relate to private production and nonsupervisory workers."

It's all run by the Government's Department of Obfusscation Department.

And let's not forget about the birth/death model.

The sample-based estimates are adjusted each month by a statistical model designed to reduce a primary source of non-sampling error, which is the inability of the sample to capture, on a timely basis, employment growth generated by new business formations.

We got 120,000 new jobs in August from that! Hurray! That's assuming jobs weren't dying instead of being born that is, since it is just a guess based on history. I hope their 6th order polynomials hold up better than mine do! (I have no idea what they use to predict the data they don't have.)

The most significant potential drawback to this or any model-based approach is that time series modeling assumes a predictable continuation of historical patterns and relationships and therefore is likely to have some difficulty producing reliable estimates at economic turning points or during periods when there are sudden changes in trend. BLS will continue researching alternative model-based techniques for the net birth/death component; it is likely to remain as the most problematic part of the estimation process.

Oh oh! I take back my "Hurray!"

Anonymous said...


I knew about the birth death but I guess I just never noticed the other part of how the report was put together. I always go to the birth death number first when I look at that report. Thanks for the clearing that up for me. I think the whole report is BS personaly.

Does it ever strike you funny how the US which only represents 5% of the worlds population of which less then 1/2 of them work can be the largest consumer nation and the main engine of world growth.

Stagflationary Mark said...

The birth death model is trying to fill a gap in the missing data by predicting it based on the past.

It works great until that prediction fails, say when we slide into a recession and the future doesn't look like the past.

Overall, the birth death model makes their data more accurate.

Overall doesn't help you much though when you take a weak report, adjust it forward using historically rosy data, then wonder what the heck went wrong when the rosy outlook met up with a not so rosy reality.

Perhaps the BLS needs more trend line disclaimers, lol.

It isn't that I distrust the intent behind the tweaks to the data, it is that I distrust the ability of anyone (including both our government and myself) to predict the future by simply looking in the rear view mirror. I am especially leery of an automated rear view mirror prediction.

Stagflationary Mark said...

Does it ever strike you funny...

This is a great time to be alive. Almost everything strikes me as funny!

Then again, I enjoy gallows humor and dark sarcasm. Maybe that's just me. *sigh*