Why the U.S. Workforce Still Shrinks as Job Growth Rises
Economics / Employment Feb 22, 2015 - 09:57 AM GMTBy: EWI
A significant hint of economic softening is the slight decline in average hourly earnings in December. It came despite "a healthy 252,000 increase in jobs. Economists are struggling to explain the phenomenon," says the Associated Press. "I can't find a plausible empirical or theoretical explanation for why hourly wages would drop when for nine months we've been adding jobs at a robust pace," says a perplexed economist.
The chart above of the U.S. Labor Force Participation Rate presents a similar conundrum. Why is it falling when job growth is rising? The answer, we think, is the emerging force of deflation.
Notice that the peak participation rate of 67.3% came from January to March 2000, as the major stock indexes topped, after which inflation first began to falter. When stocks rallied to their 2007 top, there was a mild bounce in the rate, but the latest stock market rally failed to generate any
sustained rise in the rate of work force participation. Workers appear so discouraged that the pool of available employees is back to where it was in 1978.
The opening chapter of Robert Prechter's best-seller, Conquer the Crash, illustrates various other measures depicting a long-term economic deterioration and states, "The persistent deceleration in the U.S. economy is vitally important, because it portends a major reversal from economic expansion to economic contraction."
As "great" as it was, the Great Recession of 2008-2009 was just a prelude.
This article was syndicated by Elliott Wave International and was originally published under the headline Why the Workforce Still Shrinks as Job Growth Rises. EWI is the world's largest market forecasting firm. Its staff of full-time analysts led by Chartered Market Technician Robert Prechter provides 24-hour-a-day market analysis to institutional and private investors around the world.
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Founded in 1979 by Robert R. Prechter Jr., Elliott Wave International (EWI) is the world's largest market forecasting firm. Its staff of full-time analysts provides 24-hour-a-day market analysis to institutional and private investors around the world.
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