From the President’s Desk: Two Facts Worth Noting

  • by itradmin - Thu, 03/22/2018 - 12:40
Alan Beaulieu

At ITR Economics, we strive to keep emotion out of our analysis and to stick to the facts. Solid economic forecasting and objective, actionable consulting demand it. We use numbers and trends in our economic analysis and avoid hyperbole. I recently heard a (non-ITR) speaker offer two statements that need refuting as the facts differ from the statements.

First, he cited the fact that 313,000 jobs were added to the US labor force in February and this was proof of ongoing rapid growth in the US economy. He was using this number to prove that the second half of the year will match the first half of the year. ITR is forecasting that the economy will slow down in its rate of growth in the second half of this year. The fact is that the US economy adds 313,000 or more jobs more often when we are in Phase C (slowing growth) than when we are in Phase B (accelerating growth). The bottom line is that a large number of people finding jobs is encouraging, but it is not conclusive evidence of ongoing rapid growth in the economy, such as we are enjoying now. Instead, we prefer to watch leading indicators, and most of them are consistent with our outlook.

Second, he cited that the Civilian Labor Force Participation Rate (over 16-years old) was at a record low. We researched this, and the seasonally adjusted (SA) figure (generally favored by government) and the not seasonally adjusted (NSA) figure are each not at a record low as of February. The February SA rate is 63%, the highest it has been in 46 months and up 0.5% off the October 2017 low of 62.7%. The rate of rise is typical. The 10-year average is 63.7%. We are operating a little short of average but above the record-low of 62.3% established in September 2015. It could be he was looking at the NSA results, where January was a record low, but February improved to 62.9%. The NSA 10-year average is also 63.8%.

It is not easy to discern why less people are participating, especially with strong numbers in job openings. One theory is that people of working age are retiring “early,” either because they want to lock in social security benefits or because they hit it rich and are opting for the “good life” (or something in between). Private sector job openings and construction job openings are in typical seasonal decline off record-high levels. There is not a shortage of jobs, leaving us to think there are other reasons why the labor participation rate has not rebounded even further.

It is always good to check the facts, and in this case, the facts are different than the pronouncements. Reality is tough, but it is reality that will determine if you are making the right decisions.

Alan Beaulieu
President