The following analysis is from Annaly Capital Management:
There have been a lot of “lost decade” charts put out since the new year, most either focusing on the stock market or job growth (both being effectively zero or worse). There have been very few jobless decades, but in truth we just experienced one: non-farm payrolls were 130.5 million on 12/31/99 versus 130.9 million on 12/31/09. After the slew of Bureau of Labor Statistics data in last Friday’s jobs report, we saw the chart below show up in a lot of places.
The employment rate is the total number of employed persons divided by the total civilian non-institutional population. A good many versions of this chart started in the mid-1980’s, which showed the metric making new lows, but the BLS has been measuring this since 1948. As we looked at the chart we started asking the reasonable question: why is a smaller portion of the work-age population, just 58.2% at latest count, actually working? But then we asked another question: Why was such a large portion of the work-age population working in the last 20 to 25 years? The employment numbers are broken down into age brackets, and many observers have pointed out that the younger portion of the population is taking much of the hit during this downturn. As we looked at the various age buckets, we recognized that there are always cyclical and structural forces affecting employment. The cyclical effects are typically recessions, when total employment falls. But when you break down employment by age group, you realize that there has been a rather large structural effect going on for the last, say, 45 to 63 years: the Baby Boomers.
The following chart looks at employment broken into buckets, and is a good visualization of the “pig in the python.”
Notice first that the only age bracket being measured on the right hand scale is 20 – 24 years old (the dark blue line), as this is a smaller bucket. We said before that we are at roughly 1999/2000 levels of total unemployment, but the 35-44 age bracket is at 1990 levels, and the 25-34 group is back to 1983 levels! The Boomers were born in 1946 through 1964 (according to the Census), so the waves you see in the chart show this generation rolling from one age bucket to the next. The only group above that is managing employment growth is the 55 and older bracket, and we’re willing to guess that it’s more structural than cyclical, as the boomers roll more heavily into this bucket. You’ll notice that the decline in the 35-44 age group began in the late 1990’s, and is clearly more structural than cyclical. The more worrisome part is that the largest age bucket, the 45-54 year olds, appear to have started their structural population decline. This will of course be offset by growth in other buckets, as well as a cyclical recovery in the economy and employment as a whole, but it points to a future problem of a stagnant (or possibly shrinking) pool of available labor.
This demographic shift makes the falling employment rate look no less devastating, but at least it explains the fact that we may be returning to a more “normalized” environment. It seems that we are slowly returning to an employment rate that will look more like the period before 1970, when we didn’t have a working population that included the pig in the python generation. This begs a whole new series of questions related to the future makeup, cost and productivity of the American work force, but that is a topic for another Salvo.