By John Mauldin
The Flat Earth (Employment) Society
Let’s Do a Little Time Travel
The
Implications of an Older Workforce
How Do We “Fix” the Employment
Problem?
Some Thoughts on Gold
Europe, New York, Conferences, Etc.
This week we briefly look at yesterday morning’s dismal unemployment report,
then drop back and survey some other very eye-opening data on employment. Some
groups are (surprise) doing better than others. What would it take to get us
back to “normal,” whatever that is? I give you a link to some webinars I will be
involved in and finish with the answer to the question I am asked most often,
“What do you think about gold?” I tell all. There are lots of topics to cover,
so let’s get started with no “but firsts.” (Note: this e-letter may print out
rather long, as there are LOTS of charts and tables.)
Unless you were completely out of touch this weekend, you know the jobs
report came in flat, as in zero, nada, “0”. The economy was in neutral, at least
as far as employment was concerned. But flat is actually down, as we need
125,000 jobs a month (at least) just to stay up with population growth. And, as
we will see in a few pages, it may well take more than that.
Yes, there was the caveat that 46,000 Verizon workers were on strike, so the
number should have been a positive 46,000. But then there were 20,000 returning
Minnesota state workers who were “added” back in, so maybe the number should be
negative. As it turns out, workers on strike are counted as unemployed when they
go on strike (thus subtracting from the jobs number) and are added as newly
employed when they go back to work. So sometime in the next month or so, when
those Verizon workers settle, the employment report will show a magic increase
of 46,000.
The rules for this are arcane. If you go do the BLS (Bureau of Labor
Statistics) website – assuming you have no real social life and nothing else
better to do – you find that:
Employed persons are “persons 16 years and over in the civilian
non-institutional population who, during the reference week, (a) did any work at
all (at least 1 hour) as paid employees; worked in their own business,
profession, or on their own farm, or worked 15 hours or more as unpaid workers
in an enterprise operated by a member of the family; and (b) all those who were
not working but who had jobs or businesses from which they were temporarily
absent because of vacation, illness, bad weather, childcare problems, maternity
or paternity leave, labor-management dispute, job training, or
other family or personal reasons, whether or not they were paid for the time off
or were seeking other jobs.” (Hat tip, Joan McCullough)
Somehow, strikes don’t count as labor-management disputes. Or personal
problems. Go figure. But that is a distortion of the monthly numbers, which is
why it is better to look at rolling three-month averages to get a clearer
picture. And speaking of three months, the last three months’ job reports were
revised down by a total of 58,000 jobs, making the net over the last three
months a very small number.
However you look at this report, it was just ugly. Yet it goes along with
regional reports that show a contracting economy and the national ISM (which
came out Thursday), which is barely above a contractionary number, at 50.6. The
ugly part of the ISM number is that this was the third straight month in which
inventories rose more than new orders. Historically, as this chart from Rich
Yamarone shows, that suggests we are either in or close to a recession. (Note,
there are some other negative points, but they were not three months in a row
and were not followed by recession.)
The US has roughly the same number of jobs today as it had in 2000, but the
population is well over 30,000,000 larger. To get to a civilian
employment-to-population ratio equal to that in 2000, we would have to gain some
18 MILLION jobs. The graph below is from the FRED database at the St. Louis Fed.
(Kudos to the guys in St. Louis for maintaining such a wonderful source of data
for all of us! They have thousands of charts and data sets to maintain and do so
with precision, keeping things up-to-the-minute!) Note the precipitous drop in
the ratio in the last ten years, especially during the recession.
Close friend Rob Arnott, founder of Research Affiliates, and I often exchange
emails on a wide variety of topics. His curiosity is matched only by his ability
to come up with new ways to look at old issues. He sent me the following email,
which I am simply going to cut and paste as it is only six paragraphs, but it
sets us up nicely for the next segment [my comments in brackets].
“John, I looked at the composition of the labor force, men and women. Look at
the graph below. From 1948 until 1980, men who considered themselves to be ‘in
the labor force’ (working or wanting work) equaled roughly 98% of the male
population ages 20-64. [Wow. What a quaint concept. If you could work, you
wanted work.] From 1980 to 2005, this proportion fell steadily, from 98% to 92%.
Then, in six years, it fell again by half this margin, to 89%. As for male
employment, it averaged 94% of the population age 20-64, until the 1975
recession. Today, it’s 81%. Let’s assume that the old labor force ratio of 98%
could, in fact, work. That means that male unemployment – including those who
have given up on the idea of gainful employment – is over 17%, and is roughly
tied with the levels of mid-2009.
“For women, society evolved from predominantly ‘homemaker’ employment to a
point, about a decade ago, where women in the labor force equaled about 82% of
the female population aged 20-64. The women in the labor force have dropped from
82% to 78% in ten years, with most of that drop in the past two years; that’s 5%
of the female workforce that’s simply given up in two years. Using the prior
peak of 82%, as the roster who would want to work, the current 71.6% who are
working implies that female unemployment is roughly 13%, and is much higher than
it was two years ago.
“Combine the results, and we get a figure of 15% unemployment, give or take,
relative to past peak labor-force levels, if we include those who have given up
hope. Add in the usual U-6 vs U-3 comparison (including those who are part-time
and want full-time work), and we’re at about 20% true unemployment.
“The good news, is that if our natural “labor force” is 98% of the men
and 82% of the women, and if ‘full employment’ puts 95% of them in jobs, we have
about 25 million new jobs that could be created. If we get out of the private
sector’s way, and allow employers to hire who they want, doing work that both
parties agree to do, for pay that both parties find acceptable. I.e.,
enlightenment in Washington (and Sacramento) could unleash a tsunami of new
employment.
“Caveats: Of course, there were some teenagers and a few senior citizens in
the labor force. So, in theory, the ratio of labor force, relative to the
population age 20-64, could even top 100%. But, this ratio is pretty relevant,
since the overwhelming majority of men in the labor force would be 20-64. I also
made a simplifying assumption that the population of people aged 20-64 is evenly
split. I know there are more women than men, but that’s mostly because women
live longer. Indeed, under age 20, the split is about 51.5/48.5 male majority.
So, I think this is a fair assumption that the populations are about equal in
the working-age cadre, until we can track down more accurate information. Either
way, it’s not going to make more than a slight difference in this analysis.”
While doing some research on Google for today’s letter I came across a new
(to me) web site called Metric Mash (
http://www.metricmash.com/). It accesses public databases and
allows you to slice and dice data on an assortment of things, including
employment. It is now one of my new favorites. I could do a year’s worth of
letters on the charts and graphs I can create there. Way cool.
But I will limit myself to three this week. The only “limit” I found was that
I can only create a chart with four comparisons, and I wanted to use six. Six
graphs, that is, of different age groups and their employment rates. So for this
letter I created two “overlapping” charts. The first covers four age groups,
16-19, 20-24, 25-54, and 55+, for the last five years. It will not come as any
surprise to parents with older teenagers that the rate of unemployment for them
is three times higher than for those over 55. And don’t even think about the
employment problems of black or Hispanic young males.
As it turns out, if we break it down to ten-year cohorts, we find each group
with higher employment rates, except that recently the 34-45 group is slightly
above the 45-54 group.
I was sharing these thoughts with Rich Yamarone (Chief Economist at
Bloomberg), and he said, “Let me send you this chart.” It is a chart of people
who are 75 or older who are working. The numbers are on the rise. They are
literally double what they were just 15 years ago. 1.2 million people over 75
are in the US work force, which is getting ever closer to 1% of the total
working population. It is not just Greenspan and Richard Russell!
This is consistent with what I wrote a few weeks ago. The Boomer generation
is healthier and going to work longer than any previous generation. Part of that
is because some of them need the income, but some of it is simply that they work
because they can and like to. They simply have no reason to want to “retire”;
they like the social interaction and the activity.
But that means they are not giving up jobs that younger people traditionally
take. Go into Barnes and Noble; look at the workers and think back about ten
years. Tiffani worked at Barnes and Noble when she was in her late teens, and I
admit to going to B&N just to walk and look and browse, even though I read
most of my books on my iPad. I still like trolling the aisles looking for
something new. But now the people behind the counter are close to my age (I am
62 next month) or older.
There is a lot to be said for older workers. They are usually more
dependable, as they don’t go out at night as much, have a larger set of work
experiences, and so on. But if more and more Boomers stay in the workforce, the
number of new jobs needed to get back to what we think of as “full employment”
will be just that much higher. Think about it. If only 25,000 Boomers don’t
retire each month (not a stretch) for another ten years, that adds 300,000 jobs
a year we need just to break even. That is 20% more than we currently think of
as the minimum number of new jobs needed per month (125,000). Talk about moving
the goal posts just as we start to get there!
And that brings us to the last chart from Metric Mash, which compares the
employment rates of people with four different levels of education. While the
unemployment rate for those with college degrees is much higher than five years
ago, it is still only just above 4%. But my anecdotal experience (as the father
of kids with degrees) is that a college degree is not the ticket it used to be.
People with degrees are working more, but they are moving down the “food chain,”
taking lower-paying jobs or jobs needing fewer skills than they were trained in.
That is just the way it is.
I actually get that on a closer level. Let’s just say that middle son was not
my scholar. He did not finish high school and had to deal with it being hard to
get good jobs. This year, he woke up and decided that he does indeed need an
education. He went back to online high school and recently finished, and proudly
brought me his diploma. He is enrolling in the local community college. All of
my kids are hard-working, but in today’s world it takes more than a willingness
to work hard. At the lower age and education levels, the competition for what
few jobs there are is fierce. See below.
This Thursday night, 90 minutes before NFL football kicks off, President
Obama will give us his latest version of policies to deal with the high
unemployment rate. I hope we will hear that he is going to tell federal
regulators they have to delete two rules already on the books for every new one
they write, but I will not hold my breath. More green jobs? Why not simply allow
energy companies to drill? I could go on, but the real point is that whoever is
in the White House, Democrat or Republican, will face an uphill battle.
Goldman Sachs recently released a series of graphs for its hedge-fund
clients, talking about ways to play a possible recession, with all sorts of
long-short plays, options, spreads, etc. But in that report is a gold mine of
data, which they should put up on the web in some form as a public service
(without the suggested trades, because of regulations). It is really one of the
better data compilations I have seen in a long time.
We are going to look at one table from that report, which goes along with an
e-letter I wrote about two years ago, talking about how difficult it would be to
recover from the employment losses of the recession. If anything, the situation
has gotten worse since I wrote the original piece, which even back then was
decidedly not optimistic (he says in understatement).
This table shows the number of jobs we would need to create on a consecutive
monthly basis to get back to a given level of the labor force as a percentage of
population, starting at 64%. Remember the chart above that shows we are barely
above 58% now.
Note that simply to reduce the unemployment rate to 8% over two years at the
lowest participation rate of 64% would require 157,000 jobs a month. If those
jobs started showing up, the number of people looking for jobs would increase,
thus increasing the “official” unemployment rate. Most of the numbers of
required new jobs are simply not possible, if history is any guide. (This is a
politician’s nightmare. It will be years before they can take credit for
something they didn’t do.)
Of the 36 numbers in the table, only 6 have historically ever been achieved,
and then only in rousing economies. Certainly not in an economy that is at stall
speed at best.
The simple fact is that net new jobs for the last 15 years came from business
start-ups or rather small businesses, as I have documented in previous letters.
Goldman Sachs notes that historically 90% of new jobs come from small
businesses, with 75% coming from firms with less than 20 employees. Some of
those become Google, but a lot of them are simply small, local services. But
every job, if it is yours, is important.
What we need to do is to make it easier for businesses to start and find
capital. Reduce the regulatory burden that small businesses face. When small
local banks need 1.2 employees to deal with regulations and compliance for every
1 worker they have making loans (as reported in the WSJ this week), something is
seriously wrong.
The sad fact of the matter is that we are in for a long, slow slog uphill on
employment for most the remainder of this decade, until we work through the debt
crisis and deal with the deficits, as I outlined in
Endgame.
[Quick plug. Amazon recently named
Endgame as on of the top ten books so far this year.
I was pleased. And the reviews just keep getting better as the book becomes more
relevant with the passing months. Sadly, much of what we are dealing with all
over the world is what we wrote about last year.
You should get a copy!
We are clearly not coming out of recession like we normally do. That is
because what we just experienced was not a normal “business-cycle” recession,
but a deleveraging/balance-sheet/debt-crisis recession. And the latter simply
take at least 5-6 years to work through, after a country begins to deal with the
problem, which we have not.
To repeat, even if somehow a Republican appeared in the White House tomorrow,
there is no magic he (or she!) could bring with him/her to fix the unemployment
problem. There are just some things the private sector will have to do for
itself, and the sooner the government stops getting in the way, the sooner will
get things fixed. But it will take a long time, no mater what. That is just the
way things are.
The question I am asked the most is some variant on “What do you think about
gold?” So, let me deal with that question here, as it has been a while.
First, I do not think of gold as an investment. It is insurance for me. I buy
a rather fixed amount of gold nearly every month, no matter the price. I hope
the price of gold goes down, because that means I get more coins in the mail to
go into the vault. Yes, I take delivery of my gold, and it is near me if I need
it.
My fondest dream is that I will give my gold coins to my great-great
grandkids some 70-80 years from now, and they will be rather embarrassed that
their “Papa John” bought all that much of that barbarous yellow metal instead of
more biotech stocks. But as I live in the real world, I buy gold, even though I
am optimistic we’ll get through this rough patch; because I simply don’t trust
the bas*%*ds who are driving this ship with 100% of my money in dollars, or any
fiat currency, for that matter.
Gold to me is a neutral currency. While the metal looks good over the last
ten years (and I became bullish on it in 2002 in this letter), over the last 32
years it has not had all that much luster. Bonds have been much better as an
investment. It is all about timing.
If I wanted to buy gold for investment or trading, I would simply buy GLD.
(It is an excellent vehicle for traders; however, GLD is not what I think of as
insurance.) And if I were buying gold as a trade, I would buy it in terms of the
euro or yen, which I think are both going down against the US dollar.
For those who want to buy larger sums of gold, there is a program that I like
backed/sponsored by the state government of Western Australia, called the Perth
Mint. You can buy gold certificates that represent actual bullion in vaults in
Perth at reasonable prices. While your gold is stored in Perth, you can take
delivery if you want and leave the country with no taxes owed. Or you can sell
the gold and get cash. You diversify your country risk, have excellent and safe
storage facilities, diversify your currency risk (if, like me, you think of gold
as a currency), and have a different asset class than traditional
portfolios.
You can learn more about the
Perth
Mint. And one of their dealers is an old friend of mine, Mike Checkan of
Asset Strategies International.
I have known Mike for about 30 years, and he does what he says and shoots
straight. He is well-known in the investment information world, with lots of
endorsements. You can learn more about his outfit at or call them toll-free at
(800) 831-0007 in the U.S. and Canada, or direct at (301) 881-8600. You can also
email them from their web site.
Where to buy actual bullion? Gold coins are gold coins. ASI is a good choice,
but I would shop around. Depending on the amount you are buying, mark-ups can be
significant, and there are differences in service and responsiveness. Delivery
can be an issue, although I get mine in the mail with insured mail (although we
do have to pick it up!).
Do I think gold is at a high? While I hope so, I truly do, I rather think
that gold still has some upside because of government policies. When the deficit
gets under control and we are on the road to real recovery, I rather think that
gold will come back down from whatever highs it makes. I remember in 1980 there
were True Believers who thought gold could only go one way.
For the record, I think you should own about 5% of your net worth in gold, as
insurance, not as an investment. The “goal” and your hope should be to never
have a reason to sell your gold. I trust that tells you where I stand.
I am home for another three weeks, and then yet another crazy period of
travel begins. I am off to Malta, London, Dublin, and Geneva late September
through October 5. The next week, on the 14
th, I go to Houston for a
conference (along with David Rosenberg, Ed Easterling and others; more
information at
here).
Then I fly to New York for the weekend, where I will be speaking at the
Singularity Summit, which is October 15-16. This is an outstanding conference,
and I am honored to be asked to speak. It is really a bunch of wild-eyed
futurists (like your humble analyst) getting together to think about what the
future holds for us. For two days, I get to be an optimist, if only in the
longer term! Ray Kurzweil is the guiding light, and he has assembled an all-star
cast. You can learn more at
Singularity Summit. For those who can make it, I think you
will come back amazed and more positive about the future of the world. And you
can see videos of previous conference presentations at the web site. Well worth
an evening or two or three, and the price is right; but if you can make the
conference, you will enjoy the experience and meet new friends.
Next week I will be recording a video with longtime friends Doug Casey and
David Galland on the American Debt Crisis. This is a little new to me, as I will
be in my living room but on video. It will be available the following week for
free to those who sign up
here. It is interesting to be doing this, as I become the
“optimist” in this discussion. Warning: these guys are hard-core libertarians,
but they are lots of fun!
This weekend is Labor Day in the US, and the kids are coming to Dad’s, along
with friends and friends of friends. I see grilled steaks and hamburgers, lots
of side dishes and mushrooms! And lots of family fun. I really like (and live
for) days like this! And I did my part for the US economy and got a new grill,
although I was surprised at how much grill we got for the dollar.
It is time to hit the send button. Have a great weekend and week. And if you
are working, be thankful. There are too many in the world who don’t have that
privilege.
Your glad he has too much to do analyst,
John Mauldin
