Friday, January 09, 2009
Monthly employment release here. It is bad, and it is real, because of the striking correlations with other stats, such as Treasury Daily Statements and rail traffic.
The household survey showed that employment dropped by 806,000, while the workforce dropped by 173,000. We are expecting more retirees due to demographics, so all of the workforce drop isn't discouraged workers. The rolls of the officially unemployed grew by 632,000 in December, an increase of 0.4%. Total unemployment is now 7.2%. That is an increase of 1.2% from the third quarter's 6.0%. We're going over 9% most certainly. (CR was wrong on this, but his domestic analysis was good. The difference in his forecast and reality is due to the problems with bank lending globally and the fuel shock.)
Because we are seeing a sharp break in trend, the establishment survey is not very reliable at this time. For example, the establishment survey shows that total private average weekly earnings were still higher in December than the third quarter average. This is not true - not even remotely true. ( I know this because of the Treasury receipts and other data. ) So earnings and PCE for this quarter will be exaggerated and sharply revised down later. Not that they are going to look good, but they will get a lot worse in future revisions.
I have begun to see some signs of the interim stabilization. For instance, marginal construction employment is picking up in some areas (these are salvage jobs). Also convenience stores have picked up in some areas and staffing there has picked up to boot.
A while back Michael Adams wrote a comment that summarized his family's brush with the oil patch bust and the recovery. It was classic, including a bunch of part-time jobs, a return to school, etc. During the next few years, the primary difference between that period and this one is that more people will shift to drawing Social Security due to age demographics. Some will have the chance to take early retirement with private or government pensions. The 2007 ACS breakdown of population by age shows why:
This is 2007 data, so by the end of this year (2009) virtually all of the 4.8% of the population aged 60-64 in 2007 will have begun drawing retirement funds or shortly be able to do so.
By 2010, about 1/3rd of the 6% of the population in the 55-59 bracket will be moving into the early retirement stage. In a bad economy, more of these people get laid off, and less of them can secure jobs. One of the results will be that many older people will "retire" early, and get part-time jobs as available to supplement very mediocre retirement benefits. A lot more state and local workers will retire on the theory that the benefits they are offered now are the best they are likely to get. Thus by 2011 I expect 6% - 7% of the US population to have moved into the retirement stage. This represents a huge government economic stimulus package in and of itself.
(The real crisis in medical insurance relates to the older workers who lose medical coverage and will not be able to secure new jobs with medical coverage. Instead of trying to do some wholesale rework of the medical insurance system, the best thing to do would be help these people with large insurance pools, tax credits, and assistance for employers. Many of these people have excellent skills that would be of use to smaller businesses, but smaller businesses will not be able to employ and insure them given the very high costs.)
I am very skeptical of the idea that we need to launch any more significant economic stimulus than these retirements in order to prevent a depression. One of the differences between the current economy and that of the 1930s are precisely these stats, and the much higher income stability that they represent.
I am completely confused as to why all the great brains in government and the economic recovery team don't discuss this fact. Currently we are discussing retirements only as a negative. However they are also a stimulus.