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Friday, March 30, 2012 12:29 PM

Question on Jobs: How Many Does It Take to Keep Up With Demographics?

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John Mauldin pinged me with a question on jobs and demographics from one of his readers.

Hello John.
In past letters you have cited the need to create 125,000 jobs per month to stay even with the growth rate in the labor force. Dick Hokenson of ISI Research has recently published reports suggesting that 75,000 jobs is a more accurate estimate based on his demographic analysis. This difference obviously has profound implications for the pace of recovery and potential improvement in the unemployment rate. Have you seen any of Hokenson's work? Do you have any insights into why his analysis is so different than consensus?
How Many Does It Take to Keep Up With Demographics?

Ben Bernanke has estimated 125,000 jobs a month. That is the number I have been using recently.

However, based on demographics alone, I believe 75,000 is indeed the correct number.

75,000 is a number I arrived at a couple of years ago independently, for the boomer-bust years of 2013-2015.

So why use 125,000 if it only takes 75,000? I do not know Bernanke's rationale, but I can explain mine.

  1. Between January 2008 and February 2010, the U.S. economy lost 8.8 million jobs.
  2. In the last year, the civilian population rose by 3,584,000. Yet the labor force only rose by 1,569,000. 
  3. Millions of people dropped out of the labor force in the last several years and if jobs are available they will start looking again
  4. As soon as people start looking for jobs, the number it will take to hold the unemployment rate steady will rise, perhaps to a number well above 125,000

    Point number 4 above is the key issue.

    Household Survey Data - March 9, 2012

    click on chart for sharper image

    Take a good look at the household survey from the latest BLS jobs report. Recall that the unemployment rate comes from the household survey, and not the headline jobs number.

    Note that 428,000 jobs were allegedly created in February. Also note the unemployment did not change. Why? Because the civilian labor force went up by an even larger 476,000. Thus the unemployment rate actually rose a fractional amount that rounding took away.

    If I would have told you that a rise in 428,000 jobs would not drop the unemployment rate you would have thought I was off my rocker. Yet it happened, assuming of course you believe BLS numbers, complete with amazing seasonal adjustments.

    Back to School Stats

    Let's take a look at some interesting points from Consumer Credit "Demolishes Expectations" Really? No Not Really! The "Non-Bounce" in Non-Revolving Credit
    Non-Revolving credit rose $11.8 billion in December. However, $8.8 billion of that is growth in federal government loans (which just happens to be where student loans are parked).

    Here are some charts I put together stripping out federal government loans.

    Non-Revolving Loans Minus Government Loans

    Non-Revolving Loans Minus Government Loans Detail

    True Bounce in Percentage Terms

    Note that the year-over-year "bounce" has not even gotten back to the zero-line in spite of exceptionally easy comparisons.

    Middle-Aged Borrowers Pile on Student Debt

    Reuters reports Middle-Aged Borrowers Pile on Student Debt
    Educational borrowing is up for every age group over the past three years, but it has grown far more quickly among those between 35 and 49, according to the analysis of more than 3 million credit reports provided to Reuters by the credit score tracking site CreditKarma (CreditKarma.com). That group saw its school debt burden increase by a staggering 47 percent, according to the analysis.

    The average student loan debt for those aged 38 to 41 was the biggest of that group -- about $12,000, up from just under $9,000 in 2009. Young people still carry the biggest student loan burdens; those aged 26 to 29 have an average of $14,000 in student debt. But the increased levels in middle-aged student debt is a new phenomenon.
    Negative Payback on Retraining

    The benefit of going back to school at age 49 is likely negative.

    My friend "BC" comments:
    The payoff for 40- and 50-somethings taking on debt to change occupations or trying to find jobs in "health care" or "education" and compete with Millennials trying to secure similar positions is low or negative.

    Statistically, the benefit to "education" occurs between ages 14 and 22, where one goes to high school and university. Obtaining an MBA, law degree, or another graduate degree after age 26-28 historically has not resulted in a net benefit in terms of job/career prospects or wage/salary income; and this has become particularly the case since the late '90s.

    In other words, the vast majority of people running up debt at universities, community colleges, and for-profit technical schools are wasting their time and money, as well as directing scarce resources to the "health care" and "education" sectors that don't need more misallocation further driving up costs.

    Needless to say, there is no precedent in US history for middle-aged unemployed, underemployed, or unemployable Americans running up debt in an economy that has not created a net new private sector full-time job per capita in at least 10 years.
    Fewer Nonfarm Employees Now Than December 2000

    Here is one key chart (of many) from Fewer Nonfarm Employees Now Than December 2000; Unemployment Rate: Some Things Still Don't Add Up; Obamanomics?

    Total Nonfarm Employees

    There are currently 132,409,000 nonfarm employees. In December of 2000 there were 132,481,000 employees. How's that for job growth?

    Retraining Scam

    Job retraining is scam perpetrated by for-profit universities, fueled by statements from Obama regarding re-training people for new jobs.

    Brick-layers are told they can be "chefs", take $10,000 courses and the universities call it a "success" if they land a job "in their field" at McDonald's. Unemployed roofers are led to believe they can become Java programmers, and they waste collective $billions trying. Meanwhile out of work Java programmers are told to take up a trade like roofing or auto mechanics.

    The cost of education keeps rising because Obama (like Bush before him), keeps adding to the student loan program when the entire student loan scam really needs to be shut down.

    Why Does the Scam Roll On and On?

    1. No politician wants to stand up and tell the truth: Retraining is a waste of money and the odds of launching a new career in other than a low-paying job requiring few skills is simply not likely.
    2. For-Profit universities pad politicians' pockets

    One can always find success stories, but in aggregate, retraining middle-aged workers is a net waste of money.

    To Paraphrase Joe Weisenthal

    Now, to paraphrase Joe Weisenthal: "It's hard to think that the economy is NOT going back into a recession with numbers like these." The difference in viewpoint is understanding what the underlying numbers really represent.
    Hiding Out In School

    All those hiding out in school, including those going back to school for retraining are not counted in the ranks of the unemployed. Nor are discouraged workers, who stopped looking for a job.

    As soon as those folks think there are jobs, they will start looking. Economically speaking, that would be a good thing if it happened, but it would also increase the number of jobs it will take to hold the unemployment rate steady.

    In a vacuum, all things being equal, it would take about 75,000 jobs a month demographically speaking. But things are not equal. Millions of workers want back in the labor force and they will start looking, especially students who at some point will have no choice. It may take 150,000 jobs a month or even 175,000 jobs a month, if those workers come back into the labor force in a 2-year  surge.

    That is still not the end of the story. What if we slip back into recession and people stop looking? How many will it take then? The answer may be closer to 100,000. The middle of the road approach is to stick with the number I have been using recently which is 125,000 a month.

    The irony is, the better the economy is, the more jobs it will take. One way or another, headwinds on lowering the unemployment rate are very strong.

    All things considered, I see no reason to deviate from my "Structurally High Unemployment For a Decade" call made years ago and reiterated in January in Fundamental and Mathematical Case for Structurally High Unemployment for a Decade; Shrinking Job Opportunities and the Jobs Gap; The Real Employment Situation.

    For further discussion please see Where is the Unemployment Rate Headed? Interactive Mapping Lets "You" Set the Parameters, and Plot a Graph

    Mike "Mish" Shedlock
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