Dissecting Unemployment In Non-Farm Payrolls

by: Francis Fiduk

All population totals and percentages are estimations. When available, all data used was from government sources, primarily, the Bureau of Labor Statistics and the Census Bureau. All losses and gains are in reference to percent of population, not real numbers. For example, we could have a loss in percentage terms of workers in the US, but an increase in real number of Americans working. This is due to the constant population increases of the US.

The unemployment percentage in the non-farm payroll (NFP) is surprisingly easy to get a good handle on. Population trends tend to be static and changes occur slowly over a long period of time. When put into a graph, the overall trend can be recognized quickly.

[Click all to enlarge]
Population OverviewClick to enlarge
Percentage of total US population

Unlike looking at a stock chart, these lines are fairly smooth, and much easier to make an accurate guess on how they will move. Therefore, we can accurately estimate future NFP numbers.

The last trend, which was sideways, began in October 1994 and ran until June of 2009. July 2009 ushered in the downward trend that has been going on since. The current trend has been averaging a 0.0465% loss in labor force each month.
Labor ForceClick to enlarge
Labor force percentage of total US population

During this latest trend, in any one month period, the largest increase in labor force was 0.17%, while the largest decrease was 0.23%. The July 2011 print came in at 49.12%. Therefore the August number will most likely come in a range between 49.02-49.17% with about 49.10% expected.

The population not in the labor force bottomed out in December 1999. Starting in January 2000 it has been steadily increasing. It went from 24.39% in December 1999 to 27.71% in July 2011. It has averaged a 0.0239% increase each month. During this trend, the largest increase was 0.26% with the largest decrease being 0.24%. Therefore we can expect about a range from 27.68-27.76% with about 27.74% expected.
Not in Labor ForceClick to enlarge
Not in labor force percentage of total US population

Meanwhile, the population of persons under 16 years of age has been steadily decreasing since March 1962, when it reached a peak of 36.10%. In July 2011 it was 23.17%. That is an average decrease of 0.0218% each month. The largest increase during this trend was 0.26% while the largest decrease was 0.45%. Therefore, we can expect the number to be in the range of 23.14% to 23.18% with about 23.16% expected.
Persons under 16Click to enlarge
Percentage of persons under 16 years old in total US population

Looking at past census data, we can get a decent idea of the US population on a month to month basis. We averaged about a 0.05% increase in population per month from 2000-10. This gives us an estimated population of 312,140,440 persons in the US for the August NFP. When we apply the expected percentages from earlier, we get 153,260,956 persons in labor force; 86,587,758 persons not in labor force; and 72,291,725 persons under the age of 16.

Now for the harder part of predicting unemployment.
Population With UnemploymentClick to enlarge
Percentage of total US population with labor force broken out

The percent of unemployed persons ebbs and flows throughout. Getting a good number in unemployment will prove to be the most difficult of all the categories, but it's still possible. Employment has been decreasing since March 2007, when employment hit 48.45% of the population, and has since decreased to 44.65% in July 2011 for an average decrease of 0.0731%. During this trend the largest increase was 0.17% and the largest decrease was 0.40%. Therefore we can expect a range between 44.45% and 44.75% with an expected print of 44.58%.
Employed PercentClick to enlarge
Employed persons percentage of total US population

This puts unemployment at around 14,108,748 for an unemployment print of 9.21%. I estimate the unemployment range at 8.86% to 9.47% with the chances of a print outside this range at less than 5%.

Regardless of where unemployment prints, the overall trends are disastrous looking. The number of employed persons in the US remains at a constant number while the category “not in labor force” increases at an alarming rate. As more people join that category, they will require either help from the government or help from their friends and family who are working. This will move money from “nice to haves” to “need to haves.”
Employed vs NILFClick to enlarge
Comparison of total employed persons vs. persons not in labor force

Right now, the only thing keeping unemployment from reaching 12% is the hundreds of thousands of persons leaving the labor force each month. So when the NFP prints on Friday, before getting excited about a low or flat unemployment print, check how much the category “not in labor force” grew. If unemployment prints poorly, and “not in labor force” grows by 400k again, then it’s probably time to buckle up and get very defensive.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.