Just about 12 hours after this post goes up, the world will see the ADP Employment Report for July. We can expect it to show a net gain of about 240k jobs, about the same as the 237k gained in June. It’s a decent number, higher than the 220k or so averaged last year at this time, but what does it really mean?
Context is the key to understanding the data that drives our world, so let’s get going with some solid background on what these figures mean. It’s time for a few charts and graphs once again to demonstrate just how strong things really are going into the magic period where Baby Boomers start to retire in droves – sometime after 2017.
We’ve been relying heavily on charts lately to tell the story in Barataria for one simple reason – charts are fun! Trends can be annotated in text and a story woven together, but there’s nothing like a line on a graph to tell you where we’ve been and where we are going. Sometimes, the right graph makes it about as plain as day.
The ADP Employment Report is a wonderful tool that is much maligned in the economic press for reasons we can’t explain. As the payroll processor for about 10% of all workers they see things right away that the official surveys simply cannot. They have access to the data that drives our economic reporting in real time.
The one flaw? They only include private hiring, not government. But the difference is very small.
Today’s rate of job gain is running about 10% higher than a year ago, which is decent. We haven’t seen a solid wave of hiring that really busts out the data, but we don’t reasonably expect to. Change happens slowly, excepting the big meltdown from 2008-2010. But it takes more than a monthly number to really make sense of things.
Here is the graph of the percent change in employment since 2002, the year the ADP Employment Report started, in red. The blue line is the net change in the number of people 16-64 years old, generally the working age population, in the same period:
We’ve been gaining jobs at a rate of about 2.4% where the working population is growing at a rate of 0.5%. The net difference is 1.9%, which is about what you can expect the unemployment rate to fall in the same period.
But there’s a problem, however. The broadest measure of unemployment, U6, is not falling at anywhere near that rate. It’s dropping about 1.1% per year, averaged over the last year.
What could be the difference? We’ve talked in the past about those workers who are now over 65 years old, which is to say those not normally counted as “working age”. Surveys have shown that, on average, they expect to retire around 65 like anyone else – a few earlier, a few later. But what if that doesn’t happen?
The short answer is that they will start retiring eventually, which brings us back to 2017 as the Year Everything Changes. The peak Baby Boom was from 1952-1956, and those workers will start hitting 65 years old in 2017. They may not all retire, but a lot will. And those who wait until 68 will still be out of the labor force by 2020 in large numbers.
We are just starting to see the retirement wave come through. When it hits there will be a lot more work to go around.
This is important because, as we’ve shown before, there is apparently only so much paid work to go around. That’s not to say there isn’t always more work to do – raising the kids, painting the houses, trimming the hedges – but if no one is willing to pay for it then it really doesn’t count, at least economically. It takes us back to the “Workforce Participation Rate”, the total number of people with at least some job divided by the total population. This chart is shown from 1947 to give it a little context:
It all peaks at 67% in 2000, but has dropped back to 63% today. The glory days, before 1973, had it never higher than 60% overall. The different? About 6.7M people in the workforce. You can be sure that as Baby Boomers retire we will head down to 60% again – or even lower.
That will be enough to put some serious upward pressure on wages once again and start correcting the problem. A little help from a higher minimum wage will be justified, but the main point is that private enterprise is indeed creating jobs at a good clip and a net shortage of workers is likely just around the corner.