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The Call @ Hedgeye | May 23, 2022

Below is a complimentary Demography Unplugged research note written by Hedgeye Demography analyst Neil Howe. Click here to learn more and subscribe.

Was the October Jobs Report Good News? - 11 15 2021 12 32 19 PM

In the latest October jobs report, labor force participation remained flat at 61.6%. This was despite falling unemployment and rising jobs numbers. (The New York Times)

NH: The October jobs report is out. And according to the media, the results are good news. Payrolls increased by +531K, and the unemployment rate fell to 4.6%. 

But don’t pop the champagne cork. At least not just yet.

The labor force participation rate still didn’t improve. Since June 2020, the LFP rate has hovered between 61.4% and 61.7%. In October, it remained unchanged at 61.6%. That's -1.7 percentage points lower than February 2020. 

Was the October Jobs Report Good News? - Nov15 1

This is a big deal because it's the LFP rate, not the unemployment rate, that is going to have to change to raise total employment in a major way.

Even if the unemployment rate declines from 4.6% to its pre-pandemic level of 3.5%, reached in February 2020, employment would only increase by +1.8M people. That would fill only 29% of the 6.2M total employment decline that we have experienced (as a share of the population) since the pandemic began.

What are the odds of getting unemployment back to 3.5%? No one knows. But I do know that 3.5% was the lowest unemployment rate in 52 years (since 1968-69). And to get to anything substantially lower than that, you need to go back 67 years to the Korean War.

What's more, a good argument can be made that the current unemployment rate is underestimating the temperature of the labor market due to the high quit rate. Many of today's unemployed are not really "jobless" in the classic understanding of that term. They've got all kinds of options.

They're just window shopping for something better. (See "Will the Great Resignation Last?") The ratio of job openings per unemployed people is the highest since the BLS started the JOLTS series 21 years ago.

Was the October Jobs Report Good News? - Nov15 2.1

We have written several NewsWires on reasons why people are leaving the workforce. Here is a list with links to our past stories:

We aren’t the only ones raising this concern: Even the Fed is acknowledging that the LFP rate won’t return to pre-pandemic levels.

At a recent news conference, Jerome Powell told reporters: “The temptation at the beginning of the recovery was to look at the data in February of 2020 and say, well, that’s the goal.... I think there's room for a whole lot of humility here as we try to think about what maximum employment would be.” 

Some employment optimists say the LFP will return to where it was--it will just take a bit longer than we originally figured. But the medium- and long-term outlook presents its own challenges.

The overall long-term trend in the LFP rate has been a gradual decline since 2000. Much of this is due to falling LFP among men since the 1960s and falling LFP among married women since the mid-2000s. (See "The Missing Male Worker.")

Was the October Jobs Report Good News? - Nov15 2

In the 2020s, this falling trend will speed up, not slow down, due to one further driver: the aging of the large Boomer population after they move past age 65. Yes, Boomers are workaholics, but even they want a rest.

Between age 65 and 74, the LFP rate is still around 30%. But at age 75+, it drops to 10%. This year, in 2021, the first large 1946-born cohort is hitting age 75. And from now on, every year will bring this large horde ever further from their time clocks and keyboards and ever closer to their lakeside cottages.

In the current BLS projection of future LFP rates, which also points to an ongoing decline, BLS analysts make precisely this point--that aging itself will become a new driver pushing LFP lower.

In 2030, the BLS projects the LFP rate at 60.4--down roughly 0.2 pp per year from its annual 2019 value (63.1). Measured in millions, the BLS projects the labor force at 169.6M in 2030. That's a CAGR from 2019 of only +0.33%.

Which is half the historical growth rate from 2010 to 2019 (+0.67%). Which is itself half the historical growth rate from 1990 to 2000 (+1.25%). And yes--I just can't stop--even this is half of what it was from 1970 to 1980 (+2.60%).

You just can't miss the second derivative here. It's negative, not positive. We're an aging society.

And when you juxtapose today's immediate pandemic drivers with America's long-term demographic drivers, any window of full LFP recovery is likely to be very brief if it happens at all.

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ABOUT NEIL HOWE

Neil Howe is a renowned authority on generations and social change in America. An acclaimed bestselling author and speaker, he is the nation's leading thinker on today's generations—who they are, what motivates them, and how they will shape America's future.

A historian, economist, and demographer, Howe is also a recognized authority on global aging, long-term fiscal policy, and migration. He is a senior associate to the Center for Strategic and International Studies (CSIS) in Washington, D.C., where he helps direct the CSIS Global Aging Initiative.

Howe has written over a dozen books on generations, demographic change, and fiscal policy, many of them with William Strauss. Howe and Strauss' first book, Generations is a history of America told as a sequence of generational biographies. Vice President Al Gore called it "the most stimulating book on American history that I have ever read" and sent a copy to every member of Congress. Newt Gingrich called it "an intellectual tour de force." Of their book, The Fourth Turning, The Boston Globe wrote, "If Howe and Strauss are right, they will take their place among the great American prophets."

Howe and Strauss originally coined the term "Millennial Generation" in 1991, and wrote the pioneering book on this generation, Millennials Rising. His work has been featured frequently in the media, including USA Today, CNN, the New York Times, and CBS' 60 Minutes.

Previously, with Peter G. Peterson, Howe co-authored On Borrowed Time, a pioneering call for budgetary reform and The Graying of the Great Powers with Richard Jackson.

Howe received his B.A. at U.C. Berkeley and later earned graduate degrees in economics and history from Yale University.