We're levered to the ears. And if/when interest rates rise, I get the feeling the politicians, who will not do the right thing, will simply borrow more to keep the ponzi going.

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CR just posted this:

WEDNESDAY, FEBRUARY 08, 2012
The impact of changes in the participation rate on the unemployment rate
by CalculatedRisk on 2/08/2012 11:27:00 AM



Yesterday Goldman Goldman Sachs economist Sven Jari Stehn argued that the labor force participation rate would remain "broadly flat at 63.7% through the end of 2013". He argued there would be a cyclical boost to the participation rate this year from the recovering economy, but a structural decline in the participation rate due to demographics. (Note: some decline in the participation rate has been expected over the next couple of decades).

The updated population controls from the 2010 Census showed a higher percentage of younger and older workers compared to the prime working age group (25 to 54), and also more women (participation rate is lower for women) than originally estimated - so the aggregate participation rate is now at 63.7%. Stehn argues that structural factors alone could push the aggregate participation rate down further to 63.1% by the end of 2012, but that this will probably be offset by more people returning to the labor force as the economy recovers.

The participation rate plays a key role in calculating to unemployment rate. First a few definitions from the BLS Glossary:

• Civilian noninstitutional population: Included are persons 16 years of age and older residing in the 50 States and the District of Columbia who are not inmates of institutions (for example, penal and mental facilities, homes for the aged), and who are not on active duty in the Armed Forces.

• Labor force: The labor force includes all persons classified as employed or unemployed in accordance with the definitions contained in this glossary.

• Labor force participation rate: The labor force as a percent of the civilian noninstitutional population.

• Unemployment rate: The unemployment rate represents the number unemployed as a percent of the labor force.

So a lower participation rate - with the same level of employment - would mean a lower unemployment rate.

Below is a table showing the sensitivity of the unemployment rate to three levels of the participation rate (centered around Goldman's forecast) and three rates of job creation for 2012. (note: this is mixing two different surveys - the household survey for the participation rate and unemployment rate, and the establishment survey for payroll jobs. Over time these two surveys move together, but there can be significant variability in the short run).

December 2012 Unemployment Rate based on Jobs added and Participation Rate
Participation Rate
63.4% 63.7% 64.0%
Jobs added per month (000s) 150 7.6% 8.0% 8.5%
200 7.2% 7.7% 8.1%
250 6.9% 7.3% 7.8%

If the January pace of payroll employment growth continues (around 250 thousand jobs per month), and the participation rate stays at 63.7%, then the unemployment rate could fall to 7.3% in December 2012. But even at a slower pace of payroll growth, the unemployment rate could be at or below 8% by the end of the year - unless the participation rate rises or the economy slows sharply.

The recent FOMC projections (see below) are for the unemployment rate to be in the 8.2% to 8.5% range by Q4 2012, and perhaps the FOMC was expecting the participation rate to increase this year.

If the participation rate doesn't increase, and payroll growth continues (even at 150 thousand per month), then the FOMC projections are too high. But even if the FOMC revises down their unemployment rate forecast, they will still view a 7.5% to 8% unemployment rate at the end of 2012 as unacceptably high.

Unemployment projections of Federal Reserve Governors and Reserve Bank presidents
Unemployment Rate1 2012 2013 2014
January 2012 Projections 8.2 to 8.5 7.4 to 8.1 6.7 to 7.6
1 Projections for the unemployment rate are for the average civilian unemployment rate in the fourth quarter of the year indicated.

Quote:

Explaining the Decline in the U.S. Labor Force Participation Rate

Am I missing something here? Serious question. I don't discount what you are saying KD, but it seems as though there is an initial lie and obfuscation taking place before you even get to your argument.

"The labor force participation rate is the ratio between the labor force and the overall size of their cohort (national population of the same age range)."

look forward to their reply...

I can believe that "all-at-once" boomer retirement is not an unreasonable explanation for a large part of the precipitous decline shown in the graph at the end of 2008 and beginning of 2009. Many people over 59.5 at my place of employment were given the option to retire as part of a layoff and I see no reason to believe that this did not happen elsewhere. Of course, accepting this layoff/"retirement" meant a relatively meager lump-sum payment and no pension other than what the employee may have saved in their 401k/403b account.

For many reasons, I doubt very much that a significant fraction of the over-59.5 year old "retirees" found another job, and thus became part of the NILF segment.

So is THIS how they're trying to spin the ridiculously skewed numbers from January's labor report? Riiiight. A huge CHUNK of Boomers just happened to choose January 2012 as an arbitrary month to retire, and it will continue as such until November 2012. Oops, I mean for the "foreseeable future.". **** me it's hopeless.

Complete, unadulterated [bull****]

Quote:

I can believe that "all-at-once" boomer retirement is not an unreasonable explanation for a large part of the precipitous decline shown in the graph at the end of 2008 and beginning of 2009.

This should be ridiculously negative for "the ponzi economy". A lot of the most knowledgeable, probably the most productive workers, albeit making the highest salaries, all stop producing all at once? And start living by selling savings (since interest rates are zero)?

That's less bags being produced for the fewer bagholders to hold.

My point is that it simply doesn't matter if you buy the explanation or not.

If you buy it then you MUST immediately abandon the deficit spending, because if that's the cause and will continue then we're utterly ****ed and done if you don't cut the **** out right now.

I am positive that the phrase "cut deficit spending" means absolutely nothing to our current political leaders. They simply do not consider that option. They are incapable of making the right decision and therefore they will not make the right decision.

You mean cutting the rate of increase isn't the same as cutting deficits???

That just doesn't compute.

So for that claim to be true it would mean either:

1) The boomer jobs were not back filled by new employees and therefore were not needed

or

2) They were backfilled by younger workers so as folks move up the chain, entry level jobs should abound and unemployment for the 18-25 should be nonexistent (hint it's not).

86thebs wrote..

1) The boomer jobs were not back filled by new employees and therefore were not needed because operations/production levels were cut back ~ commensurate with the layoffs

That was the case for several companies of which I'm aware - I can't say for sure if that represents the general case, but it seems reasonable.

I've long felt that the "other shoe" is that when the boomers retire they move their money out of the stock market and in to things that preserve wealth.

Yet I know an 88 year old woman who was being advised to stay with a "balanced portfolio" with the same content they'd advise for a 25 year old. That should be criminal.

I think traders are rightly fearful that when boomers who saved for retirement take their ball and go home it will deflate the market

I also love how they carefully picked the starting point as 1999, the top of the tech bubble. See? As I said before, you CAN prove anything in economics, if you carefully pick the right assumptions (or starting/ending points, in this case).

If boomers suddenly did leave the workforce, it was not voluntary. They went into early-retirement, since they couldn't find any jobs.

Funny in Florida I see a lot of retiree age people going BACK to work because they ran out of retirement. Of course most of the jobs (like most reported) are $10/hr or less and can't possibly sustain a family.

But as KD suggests, Obama is actually making his position worse and more critical with the lies on top of lies. He should have just stuck to the lies.

People who "retire" without having a critical mass of financial resources do so because they simply can't get a job. A better stat IMO would be to look at labor force participation rates over time for just the people in the 18-65 age group.

The only way this works for them is that if it was a mass retirement of those holding sufficient retirement $$$ to continue to support the economy. We all know that's not the case.

In addition to this that would only solve most of the problem. Many of those with enough $$$ have it in nontaxable incomes. So although we may not have huge entitlement payments on these retirees we still would have less revenue going forward.

Quote:

If you buy it then you MUST immediately abandon the deficit spending, because if that's the cause and will continue then we're utterly ****ed and done if you don't cut the **** out right now.

LOL. Political leaders of BOTH parties have PROVEN that they don't have to do anything substantive and all will be well, sort of.

They aren't going to slow deficit spending. Look at John Boner: He was swept into power by the TEA Party people electing a number of true fiscal conservatives. Unfortunately, they are a tiny minority, many of whom have been corrupted by the likes of Boner and his followers.

It's in few politician's best interest to cut spending.

Until and unless these politicians have a personal, vested interest in bringing spending (particularly entitlement spending) under control, nothing will happen to change the status quo.

They will just keep creating digital money to keep giving the non-productive class benefits while the rest of us sink from middle class to the poverty level, slowly and surely like a frog in a pan of water on the stove.

John

Themortgagedude wrote..

The only way this works for them is that if it was a mass retirement of those holding sufficient retirement $$$ to continue to support the economy.

Dollars don't grow food, pump oil, treat illnesses, mow lawns or stock grocery shelves.

If the number of people producing stuff goes down without reducing the number of people consuming stuff there's going to be less stuff to go around. This is a fact that you can't change by moving around pieces of paper or digits in a computer.

Those dollars aren't going to buy anything unless the generations which are still working produce a surplus that the retirees can purchase (or tax).

These people are idiot liars.

http://mises.org/rothbard/agd.pdf

The link is to a download of Rothbard's Americas Great Depression. The forward to the second edition was written in the late 1960's. In light of the current situation, Rothbard makes some amazing observations and conclusions. Namely he contends that the witch doctors will justify Socialism when socialism has destroyed the economy, stating the free market failed us. As long as there is a Federal Reserve and power centered in DC, we don't have free enterprise.

The greatest observation is what we are seeing today. That is we have 2 camps, one that says what they are doing won't work and those that propose it. The groups are the Austrians/Conservatives and the obamaites/Rubinites/Krugmanites. The economy usually recovers despite what these jackasses do, so they claim what they did worked. When it doesn't recover, they claim they didn't do enough. Thus we hear Krugman say the government should spend more money, the Fed should push more paper, etc. An extra 10% of GDP wasn't enough. Nearly tripling the monetary base wasn't enough. Mark to fantasy wasn't enough. Now, if we have a recovery of any kind, they will claim success and that this is what we need to do next time as well. In the meantime, the economy has sustained another socialist administered wound. The drunk has been served another bottle of rotgut and has avoided DT's once more, but his liver is shot.

As for the rest of the topic? I think it is the young that are unemployed, not the boomers. I worked through an actuarial table once. 20% of the males are dead at age 60, so it would stand to reason they are being replaced. The argument doesn't hold water.

Here is what does hold water. The growth in college debt holds water and every unemployed ****er in the country is living off a student loan and not looking for work. Don't worry if your unemployment runs out, we will loan you enough money to go to school and live so you can get rich while being unemployed. One more government employment scheme. One more debt bubble that we are going to suffer under.

Also, this is a lie out of both sides of their faces, as the nonsense is we don't have enough engineers and other skilled workers. The people retiring are in demand. The kid that comes out of college with a piece of paper, has a piece of paper and most likely no clue what the paper allows him to do in a job. A degree isn't necessarily know how. In fact it is quite the opposite. It is merely a capacity to learn what is necessary to do a job in the private sector or for the government (they have degrees in screwing people)

Just saying,

In most large corps & gov, retirement on the first working day of January is frequently the best in terms of maximizing your payout. So, I'd expect that there are more retirements "in January" than in any other month. I have no data, but that would be my expectation.

Quote:

The growth in college debt holds water and every unemployed ****er in the country is living off a student loan and not looking for work.

YES !!!!!!!!!!!!!!!!!!!!!!!!!

Obviously, the decrease in the participation rate is due to those going Galt or otherwise in the underground economy.

Flaps--I agree with your analysis--boomers will have to liquidate over time. That is why "buy and hold" would be a terrible strategy even if ponzi-nomics had not infected the world economy.