Post-Microrecession Blues In Trade and Jobs

We marked the end of the year-long microrecession in the United States yesterday, so today, we thought we'd check in on two of the lagging indicators of a nation's economic health: trade and jobs.

Our first chart shows how the year-over-year growth rate in the value of goods between the United States and China has been recorded by the U.S. Census Bureau for each month from January 1986 through July 2013. To account for changing currency exchange rates between the two nations, we have adjusted the values so that they are expressed in terms of the "receiving" nation's currency, with the growth rate of U.S. exports to China being based on the value of those goods expressed in yuan, and the growth rate of U.S. imports from China being based on the value of those goods expressed in U.S. dollars:

We find that both nations would appear to be have been experiencing sluggish rates of growth for the last several months. Looking just at July 2013, China's economy would appear to have fallen into recessionary territory for the third time since March 2013, as the pace of economic growth within that nation would not appear sufficient to increase its demand for the goods it imports from the U.S. Likewise, the pace at which the U.S. imports goods from China also indicates sluggish economic growth, although this month, it is in positive territory.

The sluggish growth rates observed in the past several months is not surprising given that the U.S. has only just exited a period of microrecession in August 2013, while China's economy has slowed to a very lackluster pace of growth. Since the decisions of what volume of goods to ship overseas is made many months in advance of their arrival at their destination nation's ports, which depends upon the business conditions observed at the time the decisions are made, what these growth rates are communicating are the economic conditions that existed in the respective nations several months ago.

Like international trade, jobs, as measured by the number of employed, also tend to lag behind real changes in the economy. The chart below shows how the number of employed Americans by select age groups has changed since the total number of employed Americans peaked in November 2007, just ahead of the so-called "Great Recession", through August 2013:

If you look at the data at the beginning of the Great Recession, we see that there was very little job loss at the very beginning, and no job loss outside of teens and young adults (Age 16-24) until April 2008, five months after the official start of the 2007 recession.

To take that lag effect for jobs into account, we'll use November 2012 as our start month for measuring changes in the number of employed in the U.S., since that would be five months after our dividend data first indicated the U.S. economy was experiencing recessionary conditions back in July 2012. We obtained the following figures for the net change in number of employed from November 2012 through August 2013 for each of the following age groups we regularly track:

• Teens (Age 16-19): -58,000 (from 4,468,000 in November 2012 to 4,410,000 in August 2013)


• Young Adults (Age 20-24): -52,000 (from 13,595,000 to 13,543,000)


• Adults (Age 25 and Older): +1,003,000 (from 125,214,000 to 126,217,000)

It seems the U.S. economy has been no country for young men, or women, for many months.

Still, with the microrecession just behind us, we would expect to see several more months of lackluster jobs numbers for young Americans before things really pick up as the recovery from the microrecession that ran from July 2012 through July 2013 gets underway.

Perhaps just in time for Christmas!

References

Board of Governors of the Federal Reserve System. China / U.S. Foreign Exchange Rate. G.5 Foreign Exchange Rates. Accessed 11 September 2013.

U.S. Bureau of Labor Statistics. Employment Situation Report Archive. Accessed 11 September 2013.

U.S. Census Bureau. Trade in Goods with China. Accessed 11 September 2013.

The Relative Productivity of Private vs Public Sector Employees

"How does the compensation of federal civilian employees compare with that of employees in the private sector?" is a question that the Congressional Budget Office once asked and answered, finding that the combined cash income and benefits that Uncle Sam's employees are paid is a lot more generous than what their peers in the private sector earn, even after controlling for factors like education, years of experience and job descriptions.

But we wondered how does the productivity of federal civilian employees compare with that of employees in the private sector? After all, if a civilian employee of the U.S. federal government is more productive than their similarly educated and experienced peer doing the same or similar job in the private sector, that difference could well justify their more generous compensation. If everything else is equal, it makes sense that a person who is more economically productive in doing a job would be compensated more than a less productive person doing the same work.

Thanks to a natural experiment, we're about to find out just how productive federal bureaucrats really are with respect to their direct peers in the private sector!

This summer, as part of the cost-cutting measures related to the budget sequester required by the Budget Control Act of 2011, President Obama acted to discontinue the operations of the Department of Labor's International Labor Comparisons (ILC) program, which converts the economic statistics produced by other nations' governments to adhere to U.S. standards and definitions, which allows for direct apples-to-apples comparisons to be made between the nations' economic data. Here's the announcement of the program's elimination that appeared in the Federal Register on 25 June 2013:

The International Labor Comparisons (ILC) program adjusted foreign data to a common framework of concepts, definitions, and classifications to facilitate data comparisons between the United States and other countries. ILC data were used to assess United States economic performance relative to other countries, as well as to evaluate the competitive position of the United States in international markets.

On March 1, 2013, President Obama ordered into effect the across-the-board spending cuts (commonly referred to as sequestration) required by the Balanced Budget and Emergency Deficit Control Act, as amended. In order to achieve these budget cuts and protect core programs, The Bureau of Labor Statistics is eliminating the International Labor Comparisons program. Subject to BLS policies and procedures, the underlying data and the methodology used to produce the data will be available upon request.

Shutting down the ILC program had been one of the President's budget objectives for some time. The Washington Post described the ILC's operations and President Obama's desire to cut the program back on 3 March 2010:

President Obama's budget would eliminate the International Labor Comparisons office and transfer its 16 economists to expand the bureau's work tracking inflation and occupational trends. The White House says the cut, estimated to save $2 million, is one of many difficult decisions the president was forced to make to control spending.

On 27 June 2013, the non-profit Conference Board announced that it would take over reporting the international labor comparisons. (The Conference Board is the same outfit that conducts the Consumer Confidence Survey and that reports the Index of Leading Economic Indicators, both of which are frequently cited in the media.)

The Conference Board announced today that it will continue a statistical program on international labor statistics that is to be eliminated by the federal government due to across-the-board spending cuts. The Bureau of Labor Statistics, a unit of the United States Department of Labor, has announced that it will shut down the International Labor Comparison (ILC) program on July 1.

The program provides businesses, government agencies, academics, and the public with high-quality data on manufacturing productivity, unit labor costs, consumer price, wage rates, and employment and unemployment for up to 34 countries. It adjusts data to a common framework of concepts, definitions, and classifications to facilitate data comparisons across countries. ILC data are used to assess United States economic performance relative to other countries, as well as to evaluate the competitive position of the United States in international markets. The Conference Board will continue the program on its current basis and make the data available to the public at no cost. The Conference Board will implement the transition of the program over the summer.

"Every large company needs access to this data, and it can only be gathered effectively by leveraging non-commercial relationships between various government and statistical agencies around the world," said Jon Spector, President and CEO of The Conference Board. "If a government agency cannot continue to maintain this information, it requires an independent institution to take over the task."

Clearly, the Conference Board believes that there is value in sustaining the output of the International Labor Comparisons program. But the question we wanted to answer is "how many people will they seek to hire to do the work?"

Since the private sector Conference Board wasn't doing the work previously, to take on the new work, it would very likely have to both retask its current employees to add to their current job responsibilities while also creating new jobs specifically to do the additional work.

The number of dedicated new hires would be especially revealing because that would provide a direct indication of the relative productivity of people doing the exact same jobs in both the public and private sector. If the number of new hires in the private sector required to do the work turns out to be greater than the number of dedicated federal employees who were previously doing it, that would be a clear indication that the federal bureaucrats are more productive than their private sector peers, and thus are deserving of a higher level of compensation.

As best as we can tell from its job postings since its announcement, the private sector Conference Board will hire at least two and possibly three people to do the work that would appear to have required 16 dedicated bureaucrats when the same work was done by the U.S. federal government. Here are the job descriptions for the positions that the Conference Board is seeking to fill related to this work:

• Senior Economist International Labor Comparison


• Research Analyst, Economics International Labor Comparisons Program


• Research Assistant, Economics

The last Research Assistant position doesn't reference the International Labor Comparisons program, which means that it isn't the primary purpose of the position, but it's clear from the job description that the person hired to fill the opening could very well be tasked with work related to the ILC program. We should also recognize that it is possible that the job posting for the Research Analyst position that does specifically reference the ILC work may represent more than one opening with the same job description, but there is no indication that is the case in the description for the position, so we tend to think that is not the case.

Those things noted, these job postings suggest that the private sector Conference Board believes it will take the addition of no more than 3 people to do the same work that 16 bureaucrats were dedicated to doing as employees of the U.S. federal government. That would mean that the federal government employees who were previously doing the work would appear to be less than one-fifth as productive as their private sector peers in working to produce the same output.

We therefore find that the higher level of compensation for civilian federal government employees is not justifiable on the basis of their relative productivity with respect to similarly skilled and experienced workers in the private sector.

In fact, the lower apparent productivity of federal bureaucrats would also be a big reason why cuts to government spending reduces the nation's GDP by considerably less than the actual amount of the spending reduction.

Speaking of those 16 displaced federal government employees, since it appears that they have been reassigned to other areas within the Bureau of Labor Statistics, whose remaining workload is unchanged following the elimination of the International Labor Comparisons program, that means that the collective productivity of the federal government's employees at the BLS has decreased.

Of course, that is exactly what we should expect to happen when more people become involved in generating an unchanged level of output. But at least, in doing less work per person than before, but for the same pay, that means that their total compensation per person has become just ever so much greater than their private sector peers.

It's all just another perk of working for Uncle Sam!

References

Conference Board. The Conference Board Takes Over International Labor Statistics Program from the U.S. Government. [Online Article]. 27 June 2013.

Labor Statistics Bureau. International Labor Comparisons. [Online Article]. Federal Register. 25 June 2013.

MacGillis, Alec. Obama Administration Plans to Close International Labor Comparisons Office. [Online Article]. Washington Post. 3 March 2010.

Update: Major Trends in New Jobless Claims

What's the real story for the overall trend in new jobless claims in the U.S.?

It has been several months since we last featured an update of our statistical analysis of the trends in new jobless claims in the U.S., which is mostly by design on our part.

When we last left off, the overall trend, which we identified as Trend L, was largely flat, but characterized by extreme volatility, with unusual outliers in the data popping up with an alarming frequency.

Some of that was understandable. We saw the state of California mishandle its processing of new jobless claims, causing their reported number to plummet one week, but soar in the next as the state caught up to their mistakes. We saw the impact of the "superstorm" Sandy, which caused claims in the northeastern part of the U.S. jump well above the trend, then slowly fall back toward it, then fall below it, before rebounding back to the otherwise flat trend level established early in the trend as that region of the country recovered from the event.

And then, several weeks after that, we started seeing volatility to the downside. The data would suddenly fall outside the statistically expected range for one or two weeks, but then be right back up in it the next.

That was more volatility than we wanted to have to keep addressing on weekly or biweekly basis, so we opted to let the data settle down on its own and pick up the pieces later.

And that brings us today, because it turns out that what was happening is that Trend L was breaking down and being replaced by a new trend, which we'll unimaginatively call "Trend M".

What appears to have happened is that the number of initial unemployment insurance claims being filed each week "stepped down" from the higher level defined by Trend L's mean level of 367,915 to a lower level defined by Trend M's mean level of 344,402.

Part of why we waited so long to discuss this shift is that we wanted to have enough data points to be able to describe the new trend that was establishing itself. Typically, it takes at least six to ten data points to do that, but the appearance of an outlier for the week ending 30 March 2013 led us to choose to hold off until we had at least 10 consecutive non-outlier data points. After that, it was just a matter of waiting for an opening in our schedule of posts.

Aside from the one outlier, which we recognize to be an artifact of the Department of Labor's recently revised seasonal adjustment factors for the week in question, Trend M has largely been flat since it established itself after 23 February 2013. While media reports have indicated that the trend is improving, that assessment is based on a four week moving average, which really capturing the data becoming less volatile. While that is an improvement, it hasn't affected the overall trend, which is largely just moving sideways.

Speaking of which, Trend M is characterized by a surprising amount of variation, which we typically have not seen in the data for our residual analysis, and which is the result of relatively wide swings in the data with respect to the general trend from week to week. We should also note that the current flat trend is still well elevated above the 317,000-318,000 new jobless claims filed on average each week in the years preceding the December 2007 recession.

The following chart shows each of the primary trends that we have identified in new jobless claims since 7 January 2006.

The next chart shows the residual distribution of the trends in new jobless claims over the same period (the first chart in this post focuses on the most recent trends identified in this chart.

Finally, since we've marked the formation of a new trend, we've updated our table describing each of the ones we've covered since 2006, along with more discussion of our thoughts on what's driving them:

Timing and Events of Major Shifts in Layoffs of U.S. Employees
Period	Starting Date	Ending Date	Likely Event(s) Triggering New Trend (Occurs 2 to 3 Weeks Prior to New Trend Taking Effect)
A	7 January 2006	22 April 2006	This period of time marks a short term event in which layoff activity briefly dipped as the U.S. housing bubble reached its peak. Builders kept their employees busy as they raced to "beat the clock" to capitalize on high housing demand and prices.
B	29 April 2006	17 November 2007	The calm before the storm. U.S. layoff activity is remarkably stable as solid economic growth is recorded during this period, even though the housing and credit bubbles have begun their deflation phase.
C	24 November 2007	26 July 2008	Federal Reserve acts to slash interest rates for the first time in 4 1/2 years as it begins to respond to the growing housing and credit crisis, which coincides with a spike in the TED spread. Negative change in future outlook for economy leads U.S. businesses to begin increasing the rate of layoffs on a small scale, as the beginning of a recession looms in the month ahead.
D	2 August 2008	21 March 2009	Oil prices spike toward inflation-adjusted all-time highs (over $140 per barrel in 2008 U.S. dollars.) Negative change in future outlook for economy leads businesses to sharply accelerate the rate of employee layoffs.
E	28 March 2009	7 November 2009	Stock market bottoms as future outlook for U.S. economy improves, as rate at which the U.S. economic situation is worsening stops increasing and begins to decelerate instead. U.S. businesses react to the positive change in their outlook by significantly slowing the pace of their layoffs, as the Chinese government announced how it would spend its massive economic stimulus effort, which stood to directly benefit U.S.-based exporters of capital goods and raw materials. By contrast, the U.S. stimulus effort that passed into law over a week earlier had no impact upon U.S. business employee retention decisions, as the measure was perceived to be excessively wasteful in generating new and sustainable economic activity.
F	14 November 2009	11 September 2010	Introduction of HR 3962 (Affordable Health Care for America Act) derails improving picture for employees of U.S. businesses, as the measure (and corresponding legislation introduced in the U.S. Senate) is likely to increase the costs to businesses of retaining employees in the future. Employers react to the negative change in their business outlook by slowing the rate of improvement in layoff activity.
G	18 September 2010	2 April 2011	Possible multiple causes. Political polling indicates Republican party could reasonably win both the U.S. House and Senate, preventing the Democratic party from being able to continue cramming unpopular and economically destructive legislation into law, bringing relief to distressed U.S. businesses. Fed Chairman Ben Bernanke announces Federal Reserve will act if economy worsens, potentially restoring some employer confidence. The White House announces there will be no big new stimulus plan, eliminating the possibility that more wasteful economic activity directed by the federal government would continue to crowd out the more effective economic activity of U.S. businesses.
H	9 April 2011	26 November 2011	Rising oil and gasoline prices exceed the critical $3.50-$3.60 per gallon range (in 2011 U.S. dollars), forcing numerous small businesses to act to reduce staff to offset rising costs in order to prevent losses. The trend ends when average motor gasoline prices in the U.S. fall back below the $3.50 level in the week between 5 November 2011 and 12 November 2011 - the corresponding improvement in business outlook shows up in the data with the next full pay cycle (2-3 weeks later, or rather, the week ending 26 November 2011!)
I	3 December 2011	11 February 2012	With average gasoline prices in the U.S. having fallen below the critical $3.50 per gallon level, employers respond to the improving business outlook by reducing the number weekly layoffs at a faster rate, as both businesses and consumers benefit from lower transportation and fuel costs, while consumers gain more disposable income. Trend I ended shortly after gasoline prices rose back above the $3.50 per gallon mark in late January 2012.
J	18 February 2012	23 June 2012	With average gasoline prices continuing to be a high levels through the spring and summer, the pace of layoffs in the U.S. steadily increased until June 2012, when the national average price of gasoline in the U.S. finally dropped back below the $3.50 per gallon mark.
K	30 June 2012	15 September 2012	Trend K began with a sudden shift downward in the number of new jobless claims as gasoline prices fell below the $3.50 per gallon mark in June 2012, and although the average price of gasoline in the U.S. has since risen back above that level, there has been no sudden upward shift in new jobless claims. Instead, the number of initial unemployment insurance benefit claim filings has been rising at a faster rate than at any time since on the onset of the 2007 recession.
L	23 September 2012	16 February 2013	A surging housing market beginning in July 2012 followed by the Fed's action to aim its QE efforts directly at the industry on 13 September 2012 helped averted a developing recession in the U.S. at the end of 2012 as it stabilized the number of new jobless claims filed each week. Still, Trend L was characterized by a having a tremendous number of outliers as compared to previous trends, primarily due to the impact of Hurricane Sandy.
M	23 February 2013	Present	Trend M began with a sudden shift downward in the number of new jobless claims beginning in mid-January 2013, which became a definitive shift by mid-February. With gasoline prices elevated at the time, our thinking is that other factors, such as the Fed's amping up QE 4.0 on 12 December 2012 to offset the negative effects of tax hikes they believed would take effect in 2013, are responsible for the downward shift in the number of claims. Here, we think the Fed's monetary policy succeeded in offsetting the fiscal drag from the tax hikes that did take effect in 2013, which is a good thing because the alternative would have been the onset of a full-bore recession, where we would be watching the trend in new jobless claims rise instead.

Summer Jobs 2013: Zero New Jobs for Teens

The most remarkable thing was documented in the July 2013 employment situation report. There was absolutely no change in the number of employed teens in the United States from June to July 2013.

Zero. Nil. Zip. Nada. Zilch.

Meanwhile, the number of young adults Age 20 through 24 who were counted as having jobs increases by 49,000, while the number of adults Age 25 or older rose by 178,000, for a total month-over-month increase in the number of Americans with jobs of 227,000, which was enough to lower the official unemployment rate in the U.S. to 7.4%.

That increase puts the total number of employed Americans at 144,285,000. Of these, 126,162,000 are Age 25 or older and 13,654,000 are between the ages of 20 and 24.

Meanwhile the number of teens with jobs in July 2013 is 4,469,000. Which just happens to be exactly the same number of U.S. teens that were reported as having jobs in June 2013.

It would seem that President Obama has once again failed to help teens get summer jobs, as both he and a large number of Democratic Party mayors across the nation who partnered with the President this past April appear to have been completely impotent in their efforts to create any notable improvement in summer job opportunities for U.S. teens in their communities this summer.

That 11 April 2013 discussion would appear to be the last time that President Obama paid any attention to the stagnant employment situation for U.S. teens, as he certainly isn't considering teens at all in his latest pivot to jobs.

Which means that zero change in the number of teens with jobs this summer fully reflects the level of effort that President Obama has exercised on their behalf, which in turn tells us quite a bit about the priority he places upon their plight.

If only the President cared about American teens more....

The "Strongest Start" for Teen Summer Jobs in Seven Years

In June 2013, the number of people Age 16 or older in the United States who were counted as having jobs rose by 160,000 to 144,058,000. The biggest gains were claimed by Americans between the ages of 20 and 24, who saw their numbers in the workforce increase by 193,000 to 13,605,000, while American teenagers between the ages of 16 and 19 saw their seasonally-adjusted number in the workforce rise by just 24,000 to 4,469,000.

Unfortunately, the number of adult Americans (Age 25 and older) who were counted as having jobs fell by 57,000 to 125,984,000 in June 2013, which is why the net change in the number of employed Americans only rose by 160,000 from the previous month.

Our chart below shows the change in the number of employed Americans for each of these age groups since November 2007, which marked the most recent peak for the total number of employed Americans of 146,595,000:

Compared to November 2007, there are 2,537,000 fewer Americans with jobs as of June 2013. Of these, teenagers make up the largest share, with 1,458,000 fewer employed teens making up 57% of the sustained job loss observed since that time. U.S. teens have gone from representing 4.04% of all American workers in November 2007 to just 3.10% in June 2013.

If it helps put the teen employment situation in context, June 2013's seasonally-adjusted increase of 24,000 teens with jobs would, according to the outplacement firm of Challenger, Gray & Christmas, represent the strongest start for teen summer employment in seven years.

To be fair, Challenger, Gray & Christmas' claim would appear to be based on the BLS' non-seasonally adjusted figures, which indicate that some 779,000 U.S. teens found jobs in June 2013. Overall, they claim that 994,000 teens have become employed since the "official" start of the summer jobs season with the Memorial Day holiday weekend in May.

The firm indicates that U.S. teens seeking work will have the best luck in finding summer employment in nontraditional jobs, such as at "trampoline centers, large bowling alleys with arcades, movie theaters offering full-service dining, and pools with water slides".

They also indicate that teens have been competing with older, displaced workers in the economic recovery. What they don't indicate is whether having raised the federal minimum wage by nearly 41% from June 2007 to July 2009 might have negatively affected whether U.S. employers could continue to afford to hire U.S. teens, who represent the least skilled, least educated and least experienced portion of the entire U.S. workforce, at the higher wage levels mandated by the U.S. government or in those states that have set even higher minimum wage levels.

Odd how the seasonally-adjusted total number of employed teenagers just hasn't budged much at all since the U.S. job market absorbed the impact of the last federal minimum wage hike in the months following its implementation, isn't it?

Data Reference

U.S. Bureau of Labor Statistics. June 2013 Employment Situation Report. [PDF Document]. 5 July 2013.

May 2013 Job Gains for Grownups?

Believe it or not, May 2013 was a good month for jobs in the United States. Unless you're an American teen, where you haven't seen any meaningful improvement in the employment situation since October 2009, or a young adult, where your numbers in the U.S. workforce just fell by 157,000 from their April 2013 level.

But, for Americans Age 25 or older, May 2013 was all good! In fact, for American grownups in the U.S. civilian labor force, it would seem to take just 626,000 more jobs to full recover to the level of employment last seen for this age group in November 2007, just ahead of the Great Recession!

Then again, that includes a lot of U.S. baby boomers, whose numbers are now considerably inflating the ranks of those over Age 65. What about working-age American adults?

Looking just at changes in the Age 25-64 labor force, which we can do by taking the BLS' non-seasonally-adjusted data from the Current Population Survey for the Age 25+ population and subtracting the equivalent data for the Age 65+ population from it, we find that in the six and a half years from November 2007 to May 2013:

• The Age 25-64 population has increased by 4,385,000, from 158,928,000 to 163,313,000.


• The size of the Age 25-64 labor force has increased by just 142,000, from 126,116,000 to 126,258,000.


• The number of employed among those Age 25-64 has fallen by 2,828,000, from 121,653,000 to 118,830,000.

The employment-to-population ratio for American grownups Age 25-64 has therefore fallen from 76.5% to 72.8% in the six and a half years since U.S. total employment peaked in November 2007, even though the population for this segment of working-age Americans has increased by roughly 2.8%.

Likewise, the labor force participation rate for Age 25-64 Americans has fallen from 79.4% to 77.3% during these years, which indicates that about 2% of working-age American adults have become discouraged with the ongoing employment situation in the U.S. and have permanently exited the U.S. work force. Meanwhile, the unemployment rate for working age American grownups who have remained in the civilian labor force has increased from 3.5% to 5.9%.

We find then that the real reason that the Age 25+ population would appear to now be so close to recovering their pre-recession employment number is because about 2.1 million U.S. baby boomers are delaying their retirement as they have retained their jobs into and past Age 65. There's still a very long way to go for a full economic recovery in the U.S.

America's Teen-Free Job Recovery

What would the U.S. unemployment rate be today if teens were part of the economic recovery?

In October 2009, the official U.S. unemployment rate peaked at 10.0% as the total number of employed Americans fell to 138,421,000, some 8,174,000 fewer than the peak of 146,595,000 recorded as having jobs in November 2007, just one month before the so-called "Great Recession" officially began.

Our chart below shows how the number of employed has changed for U.S. teens (Age 16-19), young adults (Age 20-24) and adults (Age 25 and over) since the peak of total employment in November 2007:

The following table compares the number of employed for each of these age groups at the peak unemployment rate for the recession in October 2009 and the April 2013:

Number of Employed by Age Group
Age Group	October 2009	April 2013	Change	Annualized Rate
Age 16 to 19	4,447,000	4,320,000	-127,000	-0.82%
Age 20 to 24	12,427,000	13,569,000	1,142,000	2.54%
Age 25 and Over	121,547,000	125,690,000	4,143,000	0.96%
Total (Age 16+)	138,421,000	143,579,000	5,158,000	1.05%

As you can see in both the chart and the table, U.S. teens have not been included in the economic recovery. From the total employment peak in November 2007, nearly one and a half million jobs held by teens disappeared by the time the U.S. unemployment rate peaked at 10.0% in October 2009. That number of lost jobs for teens has increased to 1,607,000 in the three and half years since that low mark was reached, as teens have continued to lose jobs at an average annualized rate of -0.8%.

By comparison, the number of employed 20 to 24 year olds has increased at an average annualized rate of 2.5%, while U.S. adults have seen their numbers among the employed increase at a average annualized rate of 1%.

If U.S. teens had the same rate of employment recovery as young adults, their closest peers in the U.S. work force, they would have seen their numbers in the U.S. workforce increase by 408,665 to 4,855,665. Getting jobs for that additional 408,664 teens would be sufficient to lower the official unemployment rate for the U.S. from the 7.5% recorded for April 2013 to 7.2%, given the same size for the U.S. civilian labor force of 155,238,000.

The reduction in the unemployment rate for teens however would certainly be much more pronounced. Assuming April 2013's estimate of the size of the teen labor force of 5,692,000, with a total of 4,855,665 working teens, the teen unemployment rate would now be 14.7% instead of the officially recorded unemployment rate of 24.1% for the month.

The sad part is that if President Obama had followed through on his promise to create 250,000 new jobs for teens in the summer of 2012, they would be over halfway there!

But as you can see in our chart above, the President's promised increase in the number of jobs for teens never arrived that summer, as the net number of teens employed from June through August 2012 declined by 68,000.

President Obama's supporters would likely counter that if not for the President's 2012 "Summer Jobs+" initiative, the number of employed teens would have instead decreased by 318,000 during those months. But then, we find it telling that President Obama has not announced any similar job creation program for U.S. teens in 2013 to build on that great success.

Continuing Extreme Volatility in New Jobless Claims

28 weeks ago, on 23 September 2012, a new trend in the seasonally-adjusted number of new jobless claims filed each week began. That trend has been characterized by extreme volatility, affected by such factors ranging from California's inability to process large numbers of claims in early October 2012, the impact of Hurricane Sandy from early November through early December 2012, a carry-over effect from December 2012's fiscal cliff event that ran from mid-January through mid-March 2013. And for 30 March 2013, perhaps a spike from the new seasonal adjustment factors that were just introduced in the last several weeks!

Let's get into the fiscal cliff carry-over effect, which we're considering as a hypothesis for what we observe in the data. Here, approximately 500 publicly-traded companies issued special or extra dividend payments to benefit their investors, who were seeking to avoid the risk of having dramatically higher taxes imposed upon them after the end of the year thanks to the "fiscal cliff" political impasse in Washington D.C., where the absence of a deal would hike the tax rate on dividends from 15% to as high as 43.4% with the looming expiration of the Bush-era 2003 tax cuts.

At the same time, many investors also sold off stocks at the end of the year to avoid a similar tax spike for capital gains, whose tax rate was set to rise from 15% to as high as 23.8%. Stock prices fell in response to this kind of selling in two phases. The first phase began following the re-election of Barack Obama as U.S. President on 6 November 2012, which continued through 15 November 2012. This phase was then interrupted by the actions of U.S. companies to issue extra or special dividend payments following the close of business that day, the reaction to which initiated a strong rally in stock prices as it created an incentive to hold stocks - at least through the time for when those dividend payments would be made before the end of the year.

That rally then continued until the final days of December 2012, after investors had pocketed the extra dividend payments that had been issued and could begin the second phase of selling to avoid the higher capital gains tax rates that would take effect in the new year. Stock prices then fell dramatically again through Friday, 28 December 2012, which was effectively the last real trading day of the year given the timing of the weekend and the New Year's holiday in the following week.

All that money had to go somewhere. And if we can use history as a guide, a lot of it went into housing - much like how the first U.S. housing bubble was sparked by the exodus of money from the stock market that accompanied the deflation phase of the Dot Com Bubble.

Consequently, the new year began with a surge of permits to construct new privately-owned single-unit houses, which surprised many builders, who had been expecting business in that segment part of the market to slack off considerably after December.

That unexpected increase in demand for new houses at the beginning of 2013 boosted construction employment, which has reflected in a reduced number of new claims for unemployment insurance being filed in the weeks from mid-January through mid-March, as there has been significantly fewer layoffs in the construction industry during this period.

It typically takes a U.S. builder some 3-4 months to build a new house. If this hypothesis holds, the decline in the number of new jobless claims filed in the period from mid-January through mid-March 2013 would coincide with the first phase of capital gains tax avoidance on the part of stock market investors following President Obama's re-election and the guarantee that higher tax rates would go into effect.

Also if our hypothesis holds, we can expect the U.S. housing market to be stronger than expected for several more months, especially for the kind of single-unit housing favored by recently dividend-and-capital-gains enriched stock market investors seeking second homes or investment properties in places known for their pleasant weather (especially in winter months) or recreational activities.

Kind of like all the places seeing the strongest growth in house prices at the moment.

Meanwhile, we suspect that the newest outlier for 30 March 2013 is primarily the result of the BLS' seasonal adjustment factors. Our final chart below compares the BLS' raw data with the seasonally-adjusted data for each weekly report going back to 6 January 2006:

That most recent seasonally-adjusted value shows quite a lot of effect from such a small increase in the actual raw number of new jobless claims for the week ending 30 March 2013. The new numbers that will be coming out later this morning should be a lot closer in value to each other, and hopefully, will put all this volatility in the rear view mirror.

Young Adults Hit Hardest in March Jobs Report

In March 2013, the number of Americans counted as being employed fell by 206,000 to 143,286,000 from its level in the previous month, wiping out all of the apparent gains that had been made in that statistic since November 2012 in the process.

Working young adults between the ages of 20 and 24 were the hardest hit during the month, as their numbers in the U.S. workforce dropped sharply by 145,000 from the 13,527,000 that had been recorded as having jobs in February 2013 to the 13,382,000 counted as employed in March 2013. These individuals represent 9.3% of all employed Americans.

Click here to view a larger version of the chart.

The situation wasn't much better for other age groups, who also saw their numbers among the employed decline in the month of March 2013. The number of working adults (Age 25 and older) fell by 36,000 to 125,553,000 and the number of working teens (Age 16 to 19) was reduced by 25,000 to 4,351,000.

For all practical purposes, there has been no economic recovery for U.S. teens at all since the so-called "Great Recession" officially ended in June 2009. As a percentage of the working portion of the U.S. civilian labor force, teens now account for 3.037% of all employed Americans, the lowest share recorded for teens since July 2011, which at 3.031%, marked the lowest point for this statistic in the wake of the Great Recession.

Measured from the peak of total employment in November 2007, one month before the peak of economic expansion marking the official starting date of the Great Recession in December 2007, there are 3,309,000 fewer Americans with jobs today. Of those, 47.6% are teens (Age 16-19), 18.7% are young adults (Age 20-24) and the remaining 33.7% are Age 25 or older.

Since much has been made of the changes in the size of the civilian labor force during the past several years, we thought we might compare the data for March 2013 with November 2007. Here, in November 2007, 153,835,000 Americans Age 16 or older made up the civilian labor force, which has increased by 1,193,000 to 155,028,000 in March 2013 - an increase of 0.8%.

Of that total, the number of adults Age 25+ has increased by 1.8% over that time, from 131,502,000 in November 2007 to 133,860,000 in March 2013. Meanwhile, the number of young adults in the civilian labor force increased by 1.1%, from 15,262,000 to 15,431,000 over that interval.

The number of teens counted as being part of the civilian labor force though has declined by 18.9%, from 7,071,000 in November 2007 to 5,737,000 in March 2013. Meanwhile, the population of U.S. teens has been essentially flat over this whole time, falling slightly by 1.2% from 17,048,000 in November 2007 to 16,840,000 in March 2013.

Apparently, teens are getting a very clear message that they shouldn't even bother looking for even minimum wage jobs unless they get a college degree first.

That would mean then that help wanted ads requiring applicants to have bachelor degrees to be considered for cashier positions at places like McDonalds might not be as accidental as claimed, and might instead be a taste of things to come. Especially if the minimum wage is increased to the point where it no longer makes sense to even consider hiring someone without a college degree, or even anyone, for such increasingly automated jobs.

The U.S. Employment Situation, Economy, QE and Stock Prices in Context

In February 2013, the U.S. Bureau of Labor Statistics reported that some 143,492,000 Americans were counted as having jobs, as the official unemployment rate for the U.S. dropped to 7.7%. The last time that many Americans were employed was November 2008.

Breaking the employment numbers down by age group, the number of employed Americans included 4,376,000 teens (Age 16-19), 13,527,000 young adults (Age 20-24) and 125,589,000 adults (Age 25+).

alt="Change in Number of Employed by Age Group Since Total Employment Peak in November 2007, as of February 2013" style="display: block; width: 600px; margin: 10px auto;" />

Since the level of total employment peaked at 146,595,000 in November 2007, just one month ahead of the economic peak marking the beginning of the so-called "Great Recession", there are some 3,103,000 fewer Americans working today. Of those, 50% (1,551,000) are between the ages of 16 and 19, while 15.3% are between the ages of 20 and 24, while the remaining 34.7% are Age 25 or older.

There has been no sustained improvement in the employment situation for U.S. teens since October 2009. That's four months after the "official" end to the Great Recession and three months after the most recent federal minimum wage increase.

Looking at the establishment portion of the survey, the U.S. economy appears to have added 236,000 non-farm payroll jobs in the month of February 2013 after seasonal adjustments, increasing that total to 135,046,000. (Note: The establishment survey data is subject to large revisions).

Of these new jobs, approximately 1 in 5 of the net gain are in the field of construction, primarily for specialty trade contractors (such as roofers, electricians, etc.), which account for two-thirds of the reported increase in the industry.

That suggests that the recent uptrend in the U.S. housing market that began after September 2012 is accelerating, which is acting as a positive factor for the U.S. economy, and which is offsetting a number of negative factors, such as the effects of the recent payroll tax hike and higher gasoline prices.

The Fed had announced on 13 September 2012 that it would launch a $40 billion per month quantitative easing program as part of the third edition of its various quantitative easing programs of recent years, where it would buy up mortgage-backed securities issued by U.S.-government support entities like Fannie Mae and Freddie Mac to try to further stimulate the U.S. economic recovery in this industry.

This aspect of the Fed's quantitative easing programs appears to be successful, as it offset otherwise negative circumstances that drug the U.S. economy down to near recessionary levels in the fourth quarter of 2012.

However, as we've frequently observed since the Fed's announcement, the latest QE program hasn't had much an impact at all on other asset prices, such as stock prices. Here, the Fed adjusted its existing transactions of U.S. Treasuries so that it would increase its net holdings of these securities by $45 billion per month. To do that, the Fed has continued acquiring U.S. Treasuries at the same rate as it was before its announced change in policy, but now, it is no longer selling off an equal value of U.S. Treasuries each month, which is why its net holdings of U.S. Treasuries are increasing.

The lack of change in the rate at which it is actually acquiring U.S. Treasuries then is the real reason why the Fed's latest QE program has had such little impact upon stock prices. As ZeroHedge observed back on 13 September 2012:

What is scariest, is that as of this moment, all of this is priced in. Any incremental gains in the stock market will have to come from additional easing over and above what Bernanke just announced.

The potential for additional easing is the "wild card" aspect to which we keep referring with respect to the Fed's QE programs in our observations of how changes in the rate of growth of stock prices are behaving with respect to their underlying dividends per share on recent Mondays, which we've specially updated for this Tuesday....

And that is how jobs, the economy, the Fed's latest quantitative easing program, and U.S. stock prices are all fitting together in context!

The Essential Flatness of New Jobless Claims

This may begin to change as early as later this morning, but considering that U.S. FICA payroll taxes were increased by 2% at the beginning of 2013, thereby reducing most working Americans take-home pay by a similar percentage of their income, we would have expected to see the effect show up in higher levels of new jobless claims. Our chart below shows where they officially stand through the week ending 16 February 2013, which really describes the job layoff picture that existed in the U.S. some two to three weeks earlier, between 26 January and 2 February:

Essentially, outside all the explainable volatility that has characterized the period since 22 September 2012, the current trend remains flat, which suggests several possibilities that might account for the so-far curious lack of reaction to the negative impact of higher payroll taxes:

1. There is positive economic growth in the U.S. that is offsetting the negative effect of higher payroll taxes on consumer spending, particularly in U.S. housing markets, which saw a fiscal-cliff driven surge at the end of 2012 that is still unwinding.


2. The fiscal cliff standoff at the beginning of the year delayed the implementation of new payroll tax withholding rates, so a lot of people are only just starting to see their reduced take-home pay (at least through the week between 26 January 2013 and 2 February 2013 - per the fiscal cliff deal, the IRS gave U.S. employers until 15 February 2013 to implement the final tax withholding rates for 2013).


3. People perhaps pay closer attention to the money they personally spend than to money that is taken out of their take home pay before they get it, which means they may react more to higher prices that they have to pay out of pocket (I'm paying way too much for gas!) than they do higher tax withholding (I just never had that much money to begin with!)


4. Conditioned by the recent recession and jobless recovery, employers have developed strategies to deal with people suddenly having less money to spend, making it possible to maintain a more stable number of employees on their payrolls.

As for whether or not the 2% of income hike in payroll taxes is having a negative effect on the U.S. economy, it definitely would seem to be taking a toll:

Wal-Mart Stores Inc. on Thursday joined a parade of retailers, restaurants and consumer-goods companies worried about the economic impact of the recently restored federal payroll tax that has left Americans with less money to spend.

The world's largest retailer, Burger King Worldwide Inc., Kraft Foods Group Inc. and others are lowering forecasts and adjusting sales and marketing strategies, expecting consumers with smaller paychecks to dine out less and trade down to less expensive purchases.

The expiration of the payroll tax cuts that knocked 2% off consumers' take-home pay is having an impact, these companies say. It will ding a household with $65,000 in annual income $1,300 this year, and shift $110 billion overall out of consumers' hands, estimates Citigroup.

The average U.S. household in 2012 had an annual income of $69,667, which would see its take-home pay reduced by just shy of $1,400. Meanwhile, the the median U.S. household had an annual income of $50,054, so its take home pay will be reduced by just over $1,000 thanks to President Obama's desire to increase the payroll tax rate on wage and salary income.

Interestingly, the same article provides some evidence of our fourth option, which suggests that employers have become better able to cope with Americans having less money to spend:

Now, Wal-Mart is stocking more of its shelves with cheaper products, and smaller-size packages of diapers, toilet paper and snacks. Burger King is cutting its Whopper Jr. sandwich to $1.29 from about $2, and focusing advertising on its value menu items rather than higher-price salads or smoothies.

Kraft and meat supplier Tyson Foods Inc. are introducing more lower-priced products to help restaurants and supermarkets adapt to the consumer spending downshift.

These companies say the changes could be long-lasting and are revamping operations to better cater to consumers pinched by higher taxes, stagnant wage growth and rising gasoline prices, which jumped nearly 50 cents a gallon in the past month alone.

No matter what, that these major retailers, restaurants and suppliers have these strategies ready to go so quickly just doesn't speak well to their expectations for the nation's economic situation in 2013.

The Natural Rate of Unemployment in 2013

Last March, we estimated what the natural unemployment rate for the United States was given the number of employed and unemployed Americans as well as the job turnover rates for which Americans were being hired into new jobs or let go from their old ones. Here's what we found:

In the tool, the labor market is considered to be overheating when the official rate of unemployment is below the natural rate of unemployment. That's definitely not the case for January 2012, with a natural rate of unemployment of 7.87% and an official rate of unemployment of 8.26%.

The natural unemployment rate of 7.87% also suggests that the current pace of job creation as given by the JOLTS data will not be sufficient to significantly lower the official rate of unemployment, which we've already seen with the February 2012 employment situation report, where the official rate of unemployment came in at 8.27%, up slightly from the previous month.

Let's do the math again, this time with the data available through the end of 2012:

BLS Employment Situation Table A-1 Data
Input Data	Values
Total, Civilian Labor Force, Employed (thousands)
Total, Civilian Labor Force, Unemployed (thousands)
BLS Job Overview and Labor Turnover Table A Data
Total Hires (thousands)
Total Job Separations (thousands)

Natural Rate of Unemployment Results
Calculated Results	Values
Ratio of New Hires to Number of Unemployed (%)
Ratio of Job Separations to Number of Employed (%)
Natural Rate of Unemployment (%)
Official Unemployment Rate (%)
How much slack is there in the labor market?

Running the numbers for December 2012, we find that the unemployment rate at the end of 2012 was 7.85% - just a hair below the 7.87% natural rate of unemployment that we estimated with the January 2012 data we used in our previous calculation. Or rather, the pace of job creation throughout 2012 was not sufficient to significantly lower the official rate of unemployment, just as we expected.

But then, we also find that natural rate of unemployment through December 2012 is 7.63%. When compared to December 2012's official unemployment rate of 7.85%, that suggests that the pace of job creation as given by the JOLTS new hire and new separation data will not be sufficient to significantly lower the official rate of unemployment, which we've already seen with the January 2013 employment situation report, where the official rate of unemployment came in at 7.9%, up slightly from the previous month.

That outcome agrees with our tool's finding for the data of December 2012: there's not a lot of slack in the U.S. job market, so there will be little prospect of significantly altering the official unemployment rate data in the short term.

With that being the case, we can expect little improvement in the official unemployment rate this year, which unless something happens to upset the economy, should slowly converge with the natural unemployment rate. Believe it or not, that's consistent with what President Obama's economic forecasters have predicted for 2013, who foresaw back in July 2012 that the U.S. would have a 7.6% unemployment rate by the end of 2013.

Want to Run Other Numbers for Yourself?

You can get the most recently reported data through the links below!

Employment Situation (EMPSIT)

This report is produced monthly and contains the number of employed and the number of unemployed for the total U.S. civilian workforce. The appropriate data is found in Table A-1 in the data section of the report.

Job Openings and Labor Turnover (JOLTS)

This report is produced quarterly and provides the numbers of those newly hired or who have recently separated from their previous employment in the civilian workforce. This data is found in Table A of the main body of the report.

Just remember not to mix and match the data for different months!