America's job market is sluggish. Of that, there is no doubt and this issue is one of the things that keeps central bankers awake at night, particularly those who have set an unemployment target of 6.5 percent. Unfortunately, many of us get distracted with the monthly headline U-3 unemployment statistic which, as you will see, is hardly an accurate reflection of the true employment situation in the United States.
Here are some of the things that are worrisome:
1.) The average duration of unemployment is not far below its post-recession peak of 40.4 percent and currently sits at 36.9 weeks, more than double the normal inter-recessional rate since the mid-1970s as shown here:
Here is a closeup showing what has happened to the duration of unemployment since the Great Recession officially ended in June 2009:
When the recession ended, the average duration of unemployment was 23.9 weeks. This rose to 40.4 weeks in July and September 2011 and fell back to its post-Great Recession low of 35.3 weeks in January 2013. Since then, it has risen back to its current 36.9 week level. The trend in this lagging indicator can hardly be called positive and its current elevated level compared to historical levels shows that the employment situation in the U.S. is far from healthy.
2.) The number of long-term unemployed Americans is obviously at an elevated level. Currently, 4.146 million Americans have been unemployed for 27 weeks or more, again, well more than double the normal inter-recessional number looking back several recessions as shown here:
The number of long-term unemployed now stands at 36.7 percent of all unemployed (U-3). In the year before the Great Recession, there were between 1.09 and 1.37 million long-term unemployed. This peaked at 6.704 million in April 2010, an increase of 389 percent from the beginning of the Great Recession. Since then, the number of long-term unemployed has only dropped 38 percent, hardly a significant dent.
3.) The civilian employment-to-population ratio is still stubbornly low and its current level of 58.6 percent is right around its post-Great Recession low of 58.2 percent as shown on this graph:
The population is simply growing faster than the growth in the number of employment opportunities available. We have to go all the way back to 1983 to see a ratio lower than what we have today and that low occurred after the crushing twin recessions of the early 1980s.
4.) The number workers that are employed part-time for economic reasons is also elevated and just below record levels as shown on this graph:
We keep hearing about this which has been the one saving grace of the monthly unemployment numbers:
The Labor Force Participation Rate is defined as the percentage of working-age persons in the economy who are employed or who want to be employed (i.e. are searching for work). As you can see on the graph, the decline in the labor force participation rate is unprecedented except for a very short stretch in the early 1960s. As people withdraw from the labor force, it pushes the unemployment rate down. The causes of the decline in labor force participation are generally believed to be related to the changing demographic in the United States; as the population ages (thanks to the hordes of baby boomers that live among us), older workers retire and remove themselves from the pool of those that are employed or want to be employed. Here is a graph from the American Institute of Economic Research that refutes that notion:
The labour force participation rate for older adults between the ages of 55 and 64 has actually steadily risen since the late 1980s, from just under 55 percent to around 65 percent today. In contrast, the labour force participation rate for younger adults between the ages of 20 and 24 has dropped steadily from an annual average of around 80 percent in the late-1980s and early 1990s to its current average level of around 72 percent. Interestingly, baby boomers made up about 11.9 percent of the labour force in 1990 and 19.5 percent of the total labour force in 2010 with projections showing that this will reach 25.2 percent in 2020. That's probably not going to help employment statistics down the road.
When you put all of this data into the context of the Herculean monetary efforts made by the Federal Reserve since QE1 began in November 2008, it is sobering. The fact that the employment side of the economy (save the headline unemployment rate which is still elevated compared to past inter-recessional periods) has performed so poorly since the end of the Great Recession makes it apparent that it is unlikely that further intervention by the Fed will make one bit of difference to the over 11 million Americans that find themselves part of the U-3 statistic and the additional 6.2 million Americans who find themselves part of the U-6 statistic. While Mr. Bernanke's much-dreamed of 6.5 percent headline unemployment rate may be reached sometime in 2014, the fact is that his Grand Experiment has had relatively little impact on employment compared to past recoveries.