Placing the employment situation in the election debate is not as straightforward as one would imagine. Nate Silver, author of the Five-Thirty-Eight blog in the New York Times published a wonderful article on the mathematics behind unemployment and the election cycle. The statistics and calculus prove that any correlation is minimal, at best and subject to causation errors at worst. The point is that it disproves the commonly accepted notion that an incumbent is the odds on favorite in an improving employment scenario as well as disproving the notion that historically high levels of unemployment guarantees a political reversal.
Deeper analysis of the unemployment numbers reveals some disturbing trends that are often masked by our acceptance of the headline numbers. There are three primary concerns. These include the way the unemployment numbers are calculated, the changing composition of the American workforce and the reasons why small businesses haven’t participated in this economic recovery in the same manner as they have in the past.
The Bureau of Labor Statistics (BLS) is the mother lode of employment data. Using their numbers, we can clearly see that even though the headline rate is declining, the average American isn’t feeling too secure. The number of employed people in the United States peaked at 146,595,000 people in November of 2007 and the low point of the recession was 137,968,000 in December of 2009. Our current level of 141,637,000 puts us back where we were in June of 2005. Therefore, it’s been nearly seven years since the total economy has added any jobs. The unemployment rate in June 2005 was 5.0% and we currently stand at 8.3%. The 3.3% increase is a reflection of our population growth over the last seven years and new workers attempting to enter the labor market who are unable to find jobs. The calculation of the unemployment numbers also does not reflect 1,059,000 people who have given up looking for work. If we were to add them to the 12,758,000 people who claimed unemployment last month, we end up with a more accurate national average back above 9%. Finally, those unemployed more than 27 weeks now make up more than 40% of the total unemployed population. This is another all time record.
Barack Obama was masterful at engaging young voters in the ’08 election. His ability to capture and mobilize that voting block was a key factor in his election. Those same voters that were disgruntled and alienated by the old boy’s network of the previous administration will be a wild card going into this year’s election. During the current administration’s term we have seen youth unemployment skyrocket to all time highs and remain there. The primary reason for this has been a demographic shift to retiring baby boomers now competing for part time jobs that were once the sole domain of young people entering the workforce. While overall unemployment is 2% higher than it was in 1993, the number of workers aged 55+ remaining in the workforce has increased by more than 10% over the same period and continues to accelerate.
This leads us to our final point. Small businesses have altered the way they participate in the economy. They are hiring less and they are hiring older. Regardless of the political sound bites affirming a candidate’s pro small business position, the boom in legislation and regulation is placing a disproportionate increase of new employee costs on small businesses. Policies like payroll taxes and healthcare reforms have raised the costs of hiring new employees by nearly 25% over the last 10 years. This is a bi-partisan issue that must be addressed if the employment situation is to improve.
The national unemployment number peaked at 10% in October of 2009 and currently stands at 8.3%. According to the national averages the employment picture is improving. However, the current rate is still the highest since 1983, present crisis excluded. Voters will be forced to try and determine if the declining trend works in the President’s favor or, if the stubbornly high rate of unemployment is to be held against him. Voters will also have to determine the best candidate to protect social security, 401k’s, IRA’s and private pensions, as baby boomers remain fearful of their futures and clog up the natural order of the workforce retirement cycle.
This blog is published by Andy Waldock. Andy Waldock is a trader, analyst, broker and asset manager. Therefore, Andy Waldock may have positions for himself, his family, or, his clients in any market discussed. The blog is meant for educational purposes and to develop a dialogue among those with an interest in the commodity markets. The commodity markets employ a high degree of leverage and may not be suitable for all investors. There is substantial risk of loss in investing in futures.
