Best of the Week
Most Popular
1. US Housing Market Real Estate Crash The Next Shoe To Drop – Part II - Chris_Vermeulen
2.The Coronavirus Greatest Economic Depression in History? - Nadeem_Walayat
3.US Real Estate Housing Market Crash Is The Next Shoe To Drop - Chris_Vermeulen
4.Coronavirus Stock Market Trend Implications and AI Mega-trend Stocks Buying Levels - Nadeem_Walayat
5. Are Coronavirus Death Statistics Exaggerated? Worse than Seasonal Flu or Not?- Nadeem_Walayat
6.Coronavirus Stock Market Trend Implications, Global Recession and AI Stocks Buying Levels - Nadeem_Walayat
7.US Fourth Turning Accelerating Towards Debt Climax - James_Quinn
8.Dow Stock Market Trend Analysis and Forecast - Nadeem_Walayat
9.Britain's FAKE Coronavirus Death Statistics Exposed - Nadeem_Walayat
10.Commodity Markets Crash Catastrophe Charts - Rambus_Chartology
Last 7 days
The Beatings Will Continue Until the Economy Improves - 6th Jul 20
The Corona Economic Depression Is Here - 6th Jul 20
Stock Market Short-term Peaking - 6th Jul 20
Gold’s Major Reversal to Create the “Handle” - 5th July 20
Gold Market Manipulation And The Federal Reserve - 5th July 20
Overclockers UK Custom Build PC Review - 1. Ordering / Stock Issues - 5th July 20
How to Bond With Your Budgie / Parakeet With Morning Song and Dance - 5th July 20
Silver Price Trend Forecast Summer 2020 - 3rd Jul 20
Silver Market Is at a Critical Juncture - 3rd Jul 20
Gold Stocks Breakout Not Confirmed Yet - 3rd Jul 20
Coronavirus Strikes Back. But Force Is Strong With Gold - 3rd Jul 20
Stock Market Russell 2000 Gaps Present Real Targets - 3rd Jul 20
Johnson & Johnson (JNJ) Big Pharma Stock for Machine Learning Life Extension Investing - 2nd Jul 20
All Eyes on Markets to Get a Refreshed Outlook - 2nd Jul 20
The Darkening Clouds on the Stock Market S&P 500 Horizon - 2nd Jul 20
US Fourth Turning Reaches Boiling Point as America Bends its Knee - 2nd Jul 20
After 2nd Quarter Economic Carnage, the Quest for Philippine Recovery - 2nd Jul 20
Gold Completes Another Washout Rotation – Here We Go - 2nd Jul 20
Roosevelt 2.0 and ‘here, hold my beer' - 2nd Jul 20
U.S. Dollar: When Almost Everyone Is Bearish... - 1st Jul 20
Politicians Prepare New Money Drops as US Dollar Weakens - 1st Jul 20
Gold Stocks Still Undervalued - 1st Jul 20
High Premiums in Physical Gold Market: Scam or Supply Crisis? - 1st Jul 20
US Stock Markets Enter Parabolic Price Move - 1st Jul 20
In The Year 2025 If Fiat Currency Can Survive - 30th Jun 20
Gold Likes the IMF Predicting a Deeper Recession - 30th Jun 20
Silver Is Still Cheap For Now - 30th Jun 20
More Stock Market Selling Ahead - 30th Jun 20
Trending Ecommerce Sites in 2020 - 30th Jun 20
Stock Market S&P 500 Approaching the Precipice - 29th Jun 20
APPLE Tech Stock for Investing to Profit from the Machine Learning Mega trend - 29th Jun 20
Student / Gamer Custom System Build June 2020 Proving Impossible - Overclockers UK - 29th Jun 20
US Dollar with Ney and Gann Angles - 29th Jun 20
Europe's Banking Sector: When (and Why) the Rout Really Began - 29th Jun 20
Will People Accept Rampant Inflation? Hell, No! - 29th Jun 20
Gold & Silver Begin The Move To New All-Time Highs - 29th Jun 20
US Stock Market Enters Parabolic Price Move – Be Prepared - 29th Jun 20
Meet BlackRock, the New Great Vampire Squid - 28th Jun 20
Stock Market S&P 500 Approaching a Defining Moment - 28th Jun 20
U.S. Long Bond: Let's Review the "Upward Point of Exhaustion" - 27th Jun 20
Gold, Copper and Silver are Must-own Metals - 27th Jun 20
Why People Have Always Held Gold - 27th Jun 20
Crude Oil Price Meets Key Resistance - 27th Jun 20
INTEL x86 Chip Giant Stock Targets Artificial Intelligence and Quantum Computing for 2020's Growth - 25th Jun 20
Gold’s Long-term Turning Point is Here - 25th Jun 20
Hainan’s ASEAN Future and Dark Clouds Over Hong Kong - 25th Jun 20
Silver Price Trend Analysis - 24th Jun 20
A Stealth Stocks Double Dip or Bear Market Has Started - 24th Jun 20
Trillion-dollar US infrastructure plan will draw in plenty of metal - 24th Jun 20
WARNING: The U.S. Banking System ISN’T as Strong as Advertised - 24th Jun 20
All That Glitters When the World Jitters is Probably Gold - 24th Jun 20
Making Sense of Crude Oil Price Narrow Trading Range - 23rd Jun 20
Elon Musk Mocks Nikola Motors as “Dumb.” Is He Right? - 23rd Jun 20
MICROSOFT Transforming from PC Software to Cloud Services AI, Deep Learning Giant - 23rd Jun 20
Stock Market Decline Resumes - 22nd Jun 20
Excellent Silver Seasonal Buying Opportunity Lies Directly Ahead - 22nd Jun 20
Where is the US Dollar trend headed ? - 22nd Jun 20
Most Shoppers have Stopped Following Supermarket Arrows, is Coughing the New Racism? - 22nd Jun 20

Market Oracle FREE Newsletter

AI Stocks 2020-2035 15 Year Trend Forecast

Baby Boomer Demographics, Household Formation and the Hoax Economy

Economics / Demographics Jan 11, 2010 - 02:16 AM GMT

By: Mike_Shedlock

Economics

Best Financial Markets Analysis ArticleFollowing is a collection of Emails from a few key friends regarding household formation, baby boomer and millennials demographics, the labor participation rate, trends in unemployment, and debt deflation.

One of the emails is from Steve Keen, a noted economist.


The Emails were part of a discussion regarding Jobs Contract 24th Straight Month; Unemployment Rate Stays At 10.0%.

First a little background ...

According to the BLS, the civilian Labor force was 155 million in May, falling to 153 million in December, a labor force reduction of 2 million in a mere 7 months.

In a normal recovery, the labor force should be expanding by at 100,000 to 120,000 jobs a month, minimum. The total discrepancy is at least 2,700,000.

Moreover, one would expect to see some of the 2.5 million marginally attached workers attempt to re-enter the workplace. Marginally attached workers are those who want a job but have not looked in the last 4 weeks.

Are boomers suddenly dying in mass? If not, what is happening to the labor force?

Labor Force Status

From my friend "BC" in regards to Labor Force Status ...

Table A



Those "Not in labor force" is growing at an annualized rate of 10% since Sept., and 12-13% annualized in Dec. Were it not for the decline in the labor force participation, the official U rate would be closer to 10.7-10.8%.

At the trend rate of labor force and population growth (and the unprecedented effect of Boomers permanently leaving the labor force involuntarily or otherwise), and given the depth of the contraction in employment to date, we will likely not see a period of sustained year-over-year growth of civilian employment until after '16-'17.

This secular period of little or no growth of employment, investment, real GDP, and government receipts will coincide with government elder transfer programs becoming 45-50% of government spending and experiencing continuing declines in payroll receipts at the same time outlays will grow at double-digit rates.

Assuming no overt fiscal insolvency, elder social transfers (Social Security, Supplemental Security Income, Medicare, Medicaid, etc.) will account for 1-1.25% of nominal GDP and increase on a rate of change basis inexorably between now and the late '10s to early to mid-'20s before a plateau from the late '20s to late '30s and early '40s.

The period of wealth consumption now underway will resemble from a demographic context the period '67 to '81-'86. However, this time around the Boomer cohort is much larger as a share of the population and persisted 35-40% longer on a peak basis than the "GI Generation" whose birth peak occurred in the early to mid-1920s; and the same applies to the Boomers vs. the peak "Millennials" (born '78 to '90-'93) who make up half the size of the population vs. Boomers.

The other obvious difference today is the massive debt overhang occurring concurrently with peak Boomer peak demographic drag effects AND Peak Oil.

There is no historical or demographic precedent in modern western history for what we face. One has to go all the way back to the Middle Ages to find anything remotely similar in terms of scale of combination of resource depletion, population constraints, risk of large-scale pandemics, and climate change.

Moreover, the level of economic, social, and political complexity (and cost) was a fraction of what we have today.

Regarding The Labor Pool Contraction and Census Hiring

My friend "HB" commented ...

Clearly this is an example of how government is fudging the numbers. I just don't believe this massaging down of the labor pool is in any way credible.

In regards to census hiring, the whole idea that an economy can get 'jump-started' like a dead car battery is of course complete nonsense. Yet, it is widely believed.

Moreover, it could mislead a great many people into thinking that 'things are getting better', which could influence decision-making at various levels negatively.

Boomers and Millennials Effect on the Participation Rate

In response to Fudging The Labor Pool "BC" countered ...

If Boomers are leaving the full and part-time labor force voluntarily or otherwise at the historical percent of past cohorts going back to the early to mid-20th century, and Millennials' participation rate holds to the historical average, the labor force may grow no faster than ~0.3-0.4% hereafter, which would mean no more than 460,000-620,000 net job entrants per year.

However, there is the risk that people under 30 will continue to suffer disproportionately higher joblessness, as is the case at this stage in a secular depression.

If the unemployment rate for the cohort ages 16-19 and 20-24 persists at the average 15-16% to 29-30% today, the underutilized youth labor situation will mean that the decline in Boomers' participation in the labor force will approximate the percent of young workers entering the labor force and finding employment, suggesting that the labor force will not grow much for years, if at all.

Note that Japan's labor force has been shrinking for a decade.

Effect On Household Formation

Mish Replies: Think of the effect on household formation if people under 30 will continue to suffer disproportionately higher joblessness. How pray tell will student loans be paid back let alone anyone start buying homes?

We will not only have structurally high unemployment for a decade, but we will have structurally low household formation. More people in their early to mid-30's will be living at home, sharing homes or sharing apartments.

The impact on home prices and demand for goods to furnish those homes is surely not priced into any existing economic models on housing starts, home prices, or the stock market.

What Happens to GDP if the Economy Adds 150,000 Jobs a Month?

Regarding GDP and Taxes, "BC" commented ...

  • Federal unemployment taxes are now down 10% yoy and 17-18% yoy for the fiscal YTD.
  • Corporate income taxes have collapsed 94-95% yoy and down 15-16% yoy for the fiscal YTD.
  • However, for the first time since the recession started, withholding income and employment taxes are up a modest ~3% yoy (against the easy comparisons) but still down 7-8% yoy fiscal YTD.
  • Dec. '08 to Dec. '09, unemployment taxes were down 24-25% yoy and down 17-18% yoy fiscal YTD.
  • Corporate income taxes were down 10-11% yoy and down 12-13% yoy fiscal YTD.
  • Withholding taxes were down 7-8% yoy and 8-9% yoy fiscal YTD.

From the payroll trough of '02-'03, payroll growth averaged 150,000 to 180,000/month through '04 and '05-'06.

Were the US economy to somehow manage to create 150,000 payroll jobs/month over the next 12-24 months, the trend rate of real GDP yoy from Q3-Q4 '09 would likely not exceed 1.3-1.5%, which would mean real GDP will be no higher in '10-'11 than in late '07 to early '08.

Stock speculators have likely gotten it so very wrong.

CPI Adjusted M3

On a slightly different note my friend "HB" commented on money supply...

John Williams notes that both nominal and real (CPI-adjusted) M3 are now declining year-on-year, and historically such declines have without exception either been followed by a recession or worsened an already in train downturn. This suggests that the economy is likely to do a '1931' in 2010. Note also, statistically the second year of a presidency is the worst year for the stock market overall.

Comments From My Blog

For good measure here are a few choice comments from my blog ...

2Banana: Massive state and local government layoff are coming as the Obama slush fund peters out. I have been amazed how states with massive deficits have yet to make any or significant layoffs. Tax revenue continues to shrink to local and states governments and this will not change.

Bam-Man: The ongoing rise in temporary workers (and declines in practically everything else except 'health care') bears an eerie similarity to what has been going in Japan for the past 20 years. Temporary/contract workers now make up over 30% of their labor force. It sure looks like we are following right in those footsteps.

James Cole: All this proves Mish is that we truly are now a "Hoax Economy" one big hoax. Nothing is real anymore. If it takes that many workers to count 300+ million Americans, then we have reached Soviet Union levels of efficiency here in the USA.

Jekyll Island: In Prechter's report this month: "this week's closing high brings the index to a 53% retracement of wave 1, which is nearly the same percentage as the 52.3% registered by the countertrend rally following the crash of 1929. The Dow fell 85% over the next 27 months." Like him or not, I think he's one figure you ignore at your own peril in today's environment.

Bileaf: When "fly-by-night" unaccredited "colleges" are advertising "a great medical career degree in just 12 months", you know a bubble has formed.

Mish: Indeed. There is a massive bubble in education classes but it will probably get bigger yet. These colleges (and the Obama administration) both perpetuate the idea that we can train laid off welders to become productive Java programmers, and laid off Java programmers into productive welders. Want to become a "chef"? The Art Institute of Chicago says it is easy. OK but who will hire you when you complete the course?

Consumer Credit Drops Record $17.5 Billion

Finally, in response to Consumer Credit Drops Record $17.5 Billion; Steepest Declines Since WWII Australian economist Steve Keen chimes in with ...

Yes, this is the main game Mish, as you and I have both been arguing for some time, you most recently in Fictional Reserve Lending And The Myth Of Excess Reserves.

A massively over-leveraged private sector is deleveraging, and the spending power this subtracts from the economy will at worst overwhelm, and at best neutralize, government attempts to "pump-prime".

This is especially so if the Powers-That-Be continue to believe in the empirically falsified "money multiplier" model of how money is created, and give the money directly to banks rather than debtors.

In current circumstances, this model is frankly impossible--because if money was created this way, then borrowers would have to be willing to take on an additional $9 trillion in debt for every $1 trillion pumped into the banks by The Fed. Instead, as the figures show, they're running a mile from debt now, and with good reason.

So the government's stimulus money will sit unlent in banks, whereas if it were given to the debtors, they at least would either spend it or repay their debts.

Thus Obama's current strategy, advised by Geithner, Summers and other neoclassically-trained economists, is ensuring that the government's rescue efforts get even less bang for the buck than they could get.

Fed Spreadsheet Error

By the way, it is not precisely clear how much Consumer Credit really dropped. I received an email on Saturday from "Ivan" who caught an error in the Fed's G.19 spreadsheet.

Ivan writes:

Last night I commented on your "Consumer Credit Drops Record $17.5 Billion..." post, under the nickname Coyote on Rocket Skates. The subject of my comment was that I found a spreadsheet error in a sheet available at the Fed's download page for G.19.

The published data for June-November 09 repeats exactly the data for June-November 08, and appears to affect the gross total (non seasonally adjusted) numbers from which the headline (seasonally adjusted) numbers are derived.

Assuming that the data over a five-month period did not repeat itself exactly for five months, exactly one year later, one has to conclude that the Fed's auditing and reporting is sloppy, even on important releases. Conspiracy and manipulation are plausibly deniable, bad auditing, less-so.

Next, I sent an email to 'Tyler' over at Zero Hedge, and he soon posted an entry on the subject, here: http://www.zerohedge.com/article/blatant-data-error-federal-reserve

This morning, I availed myself to Ron Paul via email, in the hopes that this might add some straw to the camel's back about the Fed's audit procedures.

Ivan

Regardless of how the consumer credit report is revised, a tip of the hat goes to Steve Keen, one of the few economists in the world who understands just how flawed the "money multiplier" theory is.

You can bookmark Steve Keen at Steve Keen's Debtwatch: Analysing the Global Debt Bubble.

Thanks to all for your Emails and comments.

By Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

Click Here To Scroll Thru My Recent Post List

Mike Shedlock / Mish is a registered investment advisor representative for SitkaPacific Capital Management . Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction.

Visit Sitka Pacific's Account Management Page to learn more about wealth management and capital preservation strategies of Sitka Pacific.

I do weekly podcasts every Thursday on HoweStreet and a brief 7 minute segment on Saturday on CKNW AM 980 in Vancouver.

When not writing about stocks or the economy I spends a great deal of time on photography and in the garden. I have over 80 magazine and book cover credits. Some of my Wisconsin and gardening images can be seen at MichaelShedlock.com .

© 2010 Mike Shedlock, All Rights Reserved

Mike Shedlock Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules