Posted by
Ax D. WhiteMan (Regis Matejcik) on Tuesday, November 10, 2009 11:26:13 AM
First, an obligatory correction of some revisionist history. It seems every article referencing the economy starts with the phrase, "the recession which began in December of 2007"; it did not. We define a recession as two consecutive quarters of negative GDP growth. All of 2007 GDP growth was positive. We didn't get negative growth until 2008, and then we didn't get two consecutive quarters until the 3rd and 4th quarter.
There are those that would like to point at the GDP chart and site the Obama Administration and it's policies as the driving force in reversing a downward trend in economic output. The GDP chart is misleading however. It is a far better barometer of the nations economic health to observe employment numbers.
It is also difficult to use the published "Unemployment Rate" as a barometer of economic health. That is because that number consists of two moving variables. "Total Employed" and "Total seeking Employment" are the two moving variables in the published Unemployment Rate. Because the "Total seeking Employment" requires a somewhat subject estimate, it's prone to project serious inaccuracies in the published Unemployment Rate.
It is useful to observe the total number of people working as an indication of economic health. Those numbers are less subjective and quite sobering. Since a peak employment in December of 2007, the economy has lost almost 8 million jobs. Almost 6 million of those have been lost since October of 2008, as shown here:
We believe that it is difficult or impossible to accurately define "seeking Employment." More importantly, we also believe that it's of little difference to the economic health of the nation if those that are not producing are not seeking employment.
Metaphorically, there are those in the cart - and those pulling the cart. If a person is "in the cart" whether or not he seeks to be a "puller of the cart" does little for the "speed of the cart."
To that end, we wish to introduce a heretofore rarely recognized useful ratio -
The Employment / Population Ratio
While the
statistics on total non-farm employment and total population involve some amount of estimates, those numbers are based on far more empirical data and less subjective than the "persons seeking employment" number. We contend therefore that the ration of total jobs to total population is not only a better theoretical barometer of economic health, but it is also that it is more accurately measured.
When one observes the ratio of Jobs to Population, it shows a much more disturbing trend than either the GDP or Unemployment rates. The graph shown below is a close up of the periods between April of 2000 and October of 2009. The graph shows the "total population" rather than "working age population" because we believe that it is useful to analyze the "size of the cart" that needs to be pulled. We see some interesting things when comparing these two numbers. One, it becomes glaringly obvious
that although the United States "employed" more people in 2007 (about month # 95 in the chart) than in any other time in history, the ratio of people working was significantly higher at the peak of the tech boom of the 90's. While many will offer differing reasons why the EPR (Employment / Population Ratio) of the "2000's" never reached that of the "90's"; it is difficult to argue that the general feeling of economic well being was greater during the 90's than it was in the 2000's.
When the graph is modified to show only "working age population" the trend is similar.
Perhaps most importantly, it is abundantly clear that the current trend is going very sharply in the wrong direction. Additionally it shows that the ratio of jobs to population is at a level not seen since 1984 - and still declining. Consequently if jobs do begin to grow, the number of people "seeking jobs" is likely to continue to grow for some time, and it is unlikely that the country will experience any significant change in economic climate until this ratio at least begins to trend in the other direction.