by Calculated Risk on 4/06/2014 09:46:00 PM

Monday:
• Early: The Black Knight February Mortgage Monitor report. This is a monthly report of mortgage delinquencies and other mortgage data.

• At 3:00 PM, Consumer Credit for February from the Federal Reserve.

Weekend:
• Schedule for Week of April 6th

• WSJ Employment Graph ignores Demographics, Needs Correction

• Research: Labor Force Participation Rate

• Labor Force Participation Rate Update

• Possible Reasons for the Decline in Prime-Working Age Men Labor Force Participation

From CNBC: Pre-Market Data and Bloomberg futures: the S&P futures and DOW futures are up slightly (fair value).

Oil prices are mixed with WTI futures at $100.85 per barrel and Brent at $106.01 per barrel.

Below is a graph from Gasbuddy.com for nationwide gasoline prices. Nationally prices are around $3.55 per gallon (up sharply over the last two months and about the same level as a year ago).  If you click on "show crude oil prices", the graph displays oil prices for WTI, not Brent; gasoline prices in most of the U.S. are impacted more by Brent prices.

Orange County Historical Gas Price Charts Provided by GasBuddy.com

by Calculated Risk on 4/06/2014 06:42:00 PM

An interesting topic is why there has been a steady decline in the labor force participation rate for prime-working age men (ages 25 to 54).

In the previous post I wrote: "The participation rate for [prime-working age] men decreased from the high 90s decades ago, to 88.5% in March. This is just above the lowest level recorded for prime working age men. This declining participation is a long term trend, and the result of inherited wealth - OK, just joking - the reasons for this decline in working age men participation are varied and need more research, however some analysts incorrectly blame this trend solely on more social benefits."

First here is a repeat of the of the graph I posted earlier today:

Click on graph for larger image.

This graph shows the changes in the participation rates for men and women and combined since 1960 (in the 25 to 54 age group - the prime working years).

The participation rate for women increased significantly from the mid 30s to the mid 70s and then flattened out. 

The decline in the participation rate for prime-working age men is a long term trend.

The second graph shows just prime-working age men (Note the change in scale from the previous graph to better show the trend).

The dashed line is the trend from 1960 through 2007 (trend line does not include the recent recession - economic weakness has pushed down the participation rate below trend recently).

So why the long term decline? Here are some possible reasons:

1) Cultural changes. As a larger percentage of women entered the labor force (pink line in first graph), this allowed men some more options, such as: a) take some time off between jobs, b) go back to school to improve skills or be able to change careers, c) be a "Mr. Mom".   There used to be stigma for men not working - or ego problems with women being the prime "bread winner" - but over time that stigma has lessened.  Even though the percentage of prime-working age women in the labor force is now declining slowly, I think the cultural changes are still the main driver for the decline in the participation rate for men.

2) Demographics.  It is possible that the changing ethnicity of the prime working-age population is contributing to the decline in the participation rate for prime-working age men.  This is unclear from the top level data (We'd need data by ethnicity, sex, and age group).

3) Underground Economy.  It is also possible that the underground economy (cash economy) is growing, and some of these men are actually working "off the books" for cash.

4) Increased benefits for disability and illness.  Note: Everyone opposes fraud, but that is probably only a small problem.  Overall most Americans would consider it good news that people with serious illnesses or disabilities receive benefits - even if that has contributed a little to the decline in the participation rate.

5) Inheritance and lower estate taxes.  Although the impact has probably been small, the decline in the participation rate for working-age men has tracked the decline in the inheritance tax over the last 50 years.  I'm guessing there are more working-age men not working today because they are living off their inheritance.

I'm sure there are other possible reasons too.  It is important to understand - that for whatever reason - this decline in participation for prime working-age men is one of the drivers of the overall decline in participation (the two main drivers are a large cohort moving into retirement, and more young people staying in school).

by Calculated Risk on 4/06/2014 12:12:00 PM

A key point: A significant decline in the participation rate had been expected, and probably half or more of the recent decline in the participation rate was due to changing demographics (and long term trends), as opposed to economic weakness.

A few key long terms trends include:
• A decline in participation for those in the 16 to 24 age groups. This is mostly due to higher enrollment rate in school (see the graph at Get the Lead Out Update). This is great news for the future and is possibly related to removing lead from the environment (see from Brad Plumer at the WaPo: Study: Getting rid of lead does wonders for school performance)

• There is a general long term trend of declining participation for those in the key working years (25 to 54). See the second graph below.

• There has been an increase in participation among older age groups. This is probably a combination of financial need (not good news) and many workers staying healthy or engaged in less strenuous jobs. 

Of course, even though the participation rate is increasing for older age groups, there are more people moving into those groups so the overall participation rate falls. 

As an example, the participation rate for those in the "55 to 59" group has increased from 68.4% twenty years ago, to 71.6% now.  And the participation rate for those in the "60 to 64" age group has increased from 44.7% to 55.9% over the same period.  However, even though the participation rate for each age group has been increasing, when people move from the "55 to 59" age group to the "60 to 64" group, their participation rate falls (from 71.6% to 55.9%).  And right now a large cohort is moving into these older age groups, and that is pushing down the overall participation rate.

Here is an update to a few graphs I've posted before.

Click on graph for larger image.

Here is a repeat of the graph I posted Friday showing the participation rate and employment-to-population ratio.

The Labor Force Participation Rate increased to 63.2% in March (blue line).  This is down slightly from 63.3% in March 2013.

This is the percentage of the working age population (16 and over, Civilian noninstitutional population¹) in the labor force.

Here is a look at some of the long term trends (updating graphs through March 2014):

This graph shows the changes in the participation rates for men and women since 1960 (in the 25 to 54 age group - the prime working years).

The participation rate for women increased significantly from the mid 30s to the mid 70s and then flattened out.  The participation rate for women in March was 74.2%.

Note that the trend for prime working age women was down BEFORE the recession.  This might be because of changing values, economic situations, or demographics (as an example, the cultural norms for some recent immigrant groups is for the women to work at home).

The participation rate for men decreased from the high 90s decades ago, to 88.5% in March. This is just above the lowest level recorded for prime working age men.   This declining participation is a long term trend, and the result of inherited wealth - OK, just joking - the reasons for this decline in working age men participation are varied and need more research, however some analysts incorrectly blame this trend solely on more social benefits.

This graph shows that participation rates for several key age groups.

There are a few key long term trends:
• The participation rate for the '16 to 19' age group has been falling for some time (red).  This is directly related to more education.

• The participation rate for the 'over 55' age group was been rising since the mid '90s (purple), and has started to decline recently.  Now that the leading edge of the baby boomers are over 65, the 'over 55' participation will decline.

• The participation rate for the '20 to 24' age group fell recently too (more education before joining the labor force).  This appears to have stabilized.

The last graph shows the participation rate for several over 55 age groups. The red line is the '55 and over' total seasonally adjusted. All of the other age groups are Not Seasonally Adjusted (NSA).

The participation rate is generally trending up for all older age groups.

The '55 and over' participation rate is starting to decline as the oldest baby boomers move into even older age groups.


¹ From the BLS: "Civilian noninstitutional population (Current Population Survey) 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."

by Calculated Risk on 4/05/2014 06:51:00 PM

This is an unofficial list of Problem Banks compiled only from public sources.

Here is the unofficial problem bank list for April 4, 2014.

Changes and comments from surferdude808:

Surprisingly there were a number of changes to the Unofficial Problem Bank List in between updates from the FDIC and OCC. In all, there were six removals and one addition that leave the list at 533 institutions with $171.9 billion in assets. A year ago, the list held 790 institutions with assets of $290.0 billion.

Actions were terminated against AnchorBank, fsb, Madison, WI ($2.1 billion Ticker: ABCW); Flagler Bank, West Palm Beach, FL ($154 million); and Albina Community Bank, Portland, OR ($134 million Ticker: ACBC). Merger partners were found by Central Virginia Bank, Powhatan, VA ($347 million Ticker: CVBK); The Village Bank, Saint George, UT ($125 million); and First State Bank of Miami, Texas, Miami, TX ($38 million). The addition this week is International Bank of Chicago, Chicago, IL ($480 million).

by Calculated Risk on 4/05/2014 03:07:00 PM

Projecting the labor force participation rate is very complicated. There are many conflicting trends that must be considered ...

For those interested in the numbers, I recommend this recent article from BLS economist Mitra Toossi: Labor force projections to 2022: the labor force participation rate continues to fall

The U.S. civilian labor force—the number of people working or looking for work—has gone through substantial changes in its size and demographic composition over the last half of the 20th century. During the 1970s and 1980s, the labor force grew vigorously as women’s labor force participation rates surged and the baby-boom generation entered the labor market. However, the dynamic demographic, economic, and social forces that once spurred the level, growth, and composition of the labor force have changed and are now damping labor force growth. The labor force participation rate of women, which peaked in 1999, has been on a declining trend. In addition, instead of entering the labor force, baby boomers are retiring in large numbers and exiting the workforce. Once again, the baby-boom generation has become a generator of change, this time in its retirement. Moreover, the jobless recovery of the 2001 recession, coupled with the severe economic impact of the 2007–2009 recession, caused disruptions in the labor market. In the first 12 years of the 21st century, the growth of the population has slowed and labor force participation rates generally have declined. As a result, labor force growth also has slowed. The Bureau of Labor Statistics (BLS) projects that the next 10 years will bring about an aging labor force that is growing slowly, a declining overall labor force participation rate, and more diversity in the racial and ethnic composition of the labor force.

The U.S. labor force is projected to reach 163.5 million in 2022. The labor force is anticipated to grow by 8.5 million, an annual growth rate of 0.5 percent, over the 2012–2022 period. The growth in the labor force during 2012–2022 is projected to be smaller than in the previous 10-year period, 2002–2012, when the labor force grew by 10.1 million, a 0.7-percent annual growth rate.

There are a number of tables in the article showing the trends for various cohorts. An excellent resource!

by Calculated Risk on 4/05/2014 01:34:00 PM

I've been reading several articles on the March employment report this morning, and I have to comment on the graph below.

From the WSJ: U.S. Reaches a Milestone on Lost Jobs

Private-sector payrolls hit a record 116.09 million, passing the peak set in January 2008, but they are far below where they would be if the labor market's trajectory weren't interrupted. And government jobs remain well short of their high point.

And the article had the following graph for private employment:

To create this graph, the WSJ used the ratio of private employment in January 2008 (115.977 million) to the total civilian noninstitutional population. The dashed line assumes that this ratio stayed constant since January 2008 - and seems to suggest that there should be 7.2 million more private sector jobs today.

This is nonsense.  This ignores the decline in the participation rate due to demographics. I've been discussing the decline in the participation rate for several years, and this has attracted significant attention recently.

To review: the participation rate has declined for both demographic and cyclical reasons. There are several key demographics trends, the two most obvious being the large cohort (baby boomers) moving into lower participation age (over 55), and the long term trend of more younger people (16 to 24) staying in school.  The cyclical decline is due to the lingering effects of the housing bust and financial crisis on the labor market.  There is an ongoing discussion about how much of the decline has been due to demographics, and how due to the effects of the great recession.  I think more than half is demographics (other research suggests about half, some suggests less).

If we just looked at demographics, the civilian noninstitutional population for the prime working age group (25 to 54) has declined by 1.5 million people since Jan 2008!  So ignoring the young and the old, we'd expect fewer workers today - not more.  That would be incorrect too since many people continue to work past 55 (and many young Americans still work).

Here is a table of some of the demographic changes over the last 6 years:

Changing Demographics, Civilian noninstitutional population, Jan 2008 to Mar 2014 (000s)
	16 to 24	25 to 54	55+
Jan-08	37,480	125,916	69,320
Mar-14	38,858	124,406	82,287
Change	1,378	-1,510	12,967

1) There are now more people in the 16 to 24 age group (with a declining participation rate because more people are staying in school).  This pulls down the overall participation rate.

2) There are fewer people in the prime working age group.

3) There are many more people in the older age group. Note: Demographics gets complicated. The participation rate is increasing for older age groups, but the participation rate for each cohort is declining as they move into older age groups.

The bottom line is this WSJ graph is nonsense - and bad enough that the WSJ should remove it from the article.

by Calculated Risk on 4/05/2014 09:15:00 AM

This will be a light week for economic data.

----- Monday, April 7th -----
3:00 PM: Consumer Credit for February from the Federal Reserve.

----- Tuesday, April 8th -----
7:30 AM ET: NFIB Small Business Optimism Index for March.

10:00 AM: Job Openings and Labor Turnover Survey for February from the BLS.

This graph shows job openings (yellow line), hires (purple), Layoff, Discharges and other (red column), and Quits (light blue column) from the JOLTS.

The number of job openings (yellow) were up 7.6% year-over-year compared to January 2013, and Quits decreased in January and were up about 3% year-over-year.

----- Wednesday, April 9th -----
7:00 AM: The Mortgage Bankers Association (MBA) will release the results for the mortgage purchase applications index.

10:00 AM: Monthly Wholesale Trade: Sales and Inventories for February. The consensus is for a 0.5% increase in inventories.

2:00 PM: FOMC Minutes for the Meeting of March 18-19, 2014.

----- Thursday, April 10th -----
8:30 AM: The initial weekly unemployment claims report will be released. The consensus is for claims to decrease to 320 thousand from 326 thousand.

Early: Trulia Price Rent Monitors for March. This is the index from Trulia that uses asking house prices adjusted both for the mix of homes listed for sale and for seasonal factors.

2:00 PM ET: The Monthly Treasury Budget Statement for March.

----- Friday, April 11th -----
8:30 AM: The Producer Price Index for March from the BLS. The consensus is for a 0.1% increase in prices.

9:55 AM: Reuter's/University of Michigan's Consumer sentiment index (preliminary for April). The consensus is for a reading of 81.0, up from 80.0 in March.

by Calculated Risk on 4/04/2014 07:17:00 PM

By request, here is an update on an earlier post through the March employment report.

Note: I added President Carter.

Important: There are many differences between these periods. Overall employment was smaller in the '80s, so a different comparison might be to look at the percentage change.   Of course the participation rate was increasing in the '80s (younger population and women joining the labor force), and the participation rate is declining now.  But these graphs give an overview of employment changes.

The first graph shows the change in private sector payroll jobs from when each president took office until the end of their term(s).  President George H.W. Bush only served one term, and President Obama is just starting the second year of his second term. 

Mr. G.W. Bush (red) took office following the bursting of the stock market bubble, and left during the bursting of the housing bubble.  Mr. Obama (blue) took office during the financial crisis and great recession.  There was also a significant recession in the early '80s right after Mr. Reagan (yellow) took office.

There was a recession towards the end of President G.H.W. Bush (purple) term, and Mr Clinton (light blue) served for eight years without a recession.

Click on graph for larger image.

The first graph is for private employment only.

The employment recovery during Mr. G.W. Bush's (red) first term was very sluggish, and private employment was down 841,000 jobs at the end of his first term.   At the end of Mr. Bush's second term, private employment was collapsing, and there were net 462,000 private sector jobs lost during Mr. Bush's two terms. 

Private sector employment increased slightly under President G.H.W. Bush (purple), with 1,510,000 private sector jobs added.

Private sector employment increased by 20,955,000 under President Clinton (light blue), by 14,717,000 under President Reagan (yellow), and 9,041,000 under President Carter (dashed green).

There were only 1,998,000 more private sector jobs at the end of Mr. Obama's first term.  Just over one year into Mr. Obama's second term, there are now 4,690,000 more private sector jobs than when he initially took office.

 A big difference between the presidencies has been public sector employment.  Note the bumps in public sector employment due to the decennial Census in 1980, 1990, 2000, and 2010. 

The public sector grew during Mr. Carter's term (up 1,304,000), during Mr. Reagan's terms (up 1,414,000), during Mr. G.H.W. Bush's term (up 1,127,000), during Mr. Clinton's terms (up 1,934,000), and during Mr. G.W. Bush's terms (up 1,744,000 jobs).

However the public sector has declined significantly since Mr. Obama took office (down 738,000 jobs). These job losses have mostly been at the state and local level, but more recently at the Federal level.  This has been a significant drag on overall employment.

Looking forward, I expect the economy to continue to expand for the next few years, so I don't expect a sharp decline in private employment as happened at the end of Mr. Bush's 2nd term (In 2005 and 2006 I was warning of a coming recession due to the bursting of the housing bubble).

A big question is when the public sector layoffs will end.  It appears the cutbacks are mostly over at the state and local levels, but there are ongoing cutbacks at the Federal level.  Right now I'm expecting some increase in public employment in 2014.

by Calculated Risk on 4/04/2014 03:28:00 PM

The U.S. achieved a minor milestone today with the number of private sector payroll jobs finally exceeding the pre-recession peak. This raises a few of key points:

1) This doesn't include growth of the labor force and population.

2) Total employment is still below the pre-recession peak because of all the public sector layoffs (see previous post for a table of annual public sector job losses).  Total employment should be above the pre-recession peak this summer.

3) Even though it took 6+ years to exceed the previous employment peak, this is actually better than most recoveries from a financial crisis. (Note: this recovery was during a period of declining participation - partially due to demographics - and that makes this milestone even better).

 From Josh Lehner today: Getting There. Financial Crises Edition.

[T]he graph compares employment loss for Carmen Reinhart and Ken Rogoff’s so-called Big 5 financial crises with the U.S. Great Depression and Great Recession. Using Reinhart and Rogoff’s great work on historical financial crises, our office previously looked into comparing the Great Recession with these historical financial crises to see how the current cycle stacked up. Overall the Great Recession was your “garden-variety, severe financial crisis” as Rogoff once said, but in terms of employment, the U.S. has actually done fairly well when compared with these other, major crises. Not good enough overall to avoid mass unemployment and lackluster growth, but in the context of historical financial crises, the U.S. employment picture is better than most.

Point 3 is critically important for policy.

In 2009, many of us argued the current recovery would be sluggish because of the causes of the recession (a housing bust that led to a financial crisis). This is why I never understood why projects needed to be "shovel ready" to be included in the early 2009 stimulus package. Look at the construction job losses in the previous post, clearly infrastructure investment could have been spread out over several more years.

Unfortunately, when the stimulus was being introduced, many opponents argued the economy would recover quickly without the stimulus (obviously poor economic analysis). Even the Obama administration mostly thought the recovery would happen sooner (hence the unfortunate pivot to austerity).

Even today some policymakers don't understand what happened.  As an example, from U.S. Congressman Kevin Brady (R-TX), chairman of the Joint Economic Committee: “That it took six long years for America's economy to simply return to break even for Main Street jobs is compelling proof of President Obama's disappointing economic leadership." Unfortunately that shows the "chairman of the Joint Economic Committee" is ignorant of the nature of recoveries from a financial crisis. Very sad.

What we should actually be doing is asking why the recovery was this good relative to other financial crisis. What did we do correctly? And what did we do wrong?

Wrong is easy - some of the stimulus was a clear mistake. As an example, the tax credit for business investment - when there was already too much supply - was a mistake. And research by Atif Mian and Amir Sufi suggests that "cash for clunkers" wasn't effective:

[A]lmost all of the additional purchases under the program were pulled forward from the very near future; the effect of the program on auto purchases is almost completely reversed by as early as March 2010 – only seven months after the program ended. The effect of the program on auto purchases was significantly more short-lived than previously suggested. We also find no evidence of an effect on employment, house prices, or household default rates in cities with higher exposure to the program.

And of course I vigorously opposed the expensive and ineffective housing tax credit that was originally proposed by Senators Johnny Isakson (R) and Joe Lieberman (I).  I opposed the tax credit early and often. The tax credit for buying new homes was especially dumb. A key problem during the housing bust was the excess supply of vacant housing units, and incentivizing people to buy new homes (and add to the supply) made no sense at all.

But clearly most of the stimulus was effective, and I think more infrastructure investment (help with construction employment) - and more aid to states (keep more teachers, police and firefighters employed) - would have been very helpful.

Luckily the track record of the Federal Reserve was better than for fiscal policy makers.  Although Bernanke was slow to recognize what was happening - and he underestimated the severity of the crisis (remember "contained to subprime"?) - when he finally understood what was happening, the Fed was very effective.   Bernanke's critics argued that his policies would lead to inflation (wrong) and a collapse in the dollar against other currencies (also wrong).

The key points are this recovery is better than most from a financial crisis and policymakers did many of the correct things (although they could have done better).

by Calculated Risk on 4/04/2014 01:29:00 PM

The following table shows the net payroll jobs added per year for construction and government jobs. Construction was the hardest hit sector during (and before) the recession, and construction employment is now up 532 thousand from the bottom.

Government employment is still falling (state and local employment has bottomed, but Federal employment is still declining).  Combined there are about 2.3 million fewer construction and government jobs compared to before the recession started.

Annual Change in Construction and Government Payroll jobs (000s)
Year	Construction Jobs	Government
2002	-85	233
2003	127	-42
2004	290	147
2005	416	186
2006	152	209
2007	-195	288
2008	-789	180
2009	-1047	-74
2010	-192	-219
2011	144	-317
2012	114	-58
2013	156	-34
20141	88	-13
1through March 2014

This graph shows total construction employment as reported by the BLS (not just residential).

Since construction employment bottomed in January 2011, construction payrolls have increased by 532 thousand - but there are still 1.76 million fewer construction jobs now than at the peak in 2006.

Historically there is a lag between an increase in activity and more hiring - and it appears hiring should pickup in 2014.