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Jason Tillberg
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I am 36 years old, happily married and have two young daughters 2 and 4. I live upstate New York near Ithaca in a town called Newfield. I study home economics and will write articles about companies and investing ideas that play into home economics and demographics.
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Economy of The Home
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Put Your Money to Work - What you Need to Know to Invest in Stocks
  • Another Leg Down In U.S. Employment Coming? 2 comments
    Sep 27, 2012 12:14 PM | about stocks: EWJ

    From its peak in 1990, Japan has been experiencing an aggregate decline in the total number of hours worked. If I were to multiply the total number of employees in Japan by the average annual hours worked per employee, I get a chart that shows the aggregate number of hours worked per year that looks like this:

    (click to enlarge)

    The same year the aggregate number of hours worked in Japan peaked, 1990, was the same year their stock market peaked. Investing in the iShares MSCI Japan Index Fund (NYSEARCA:EWJ) would have proven a poor long term holding.

    Here is a chart of the Nikkei 225 index:

    (click to enlarge)

    Source: Yahoo

    I cite Japan simply as an example of a large economy experiencing 20+ years of decline in aggregate work hours and because there is no reason it can't happen here too.

    In the U.S., we have similar measures of work that show an aggregate decline since 2000.

    First, here is a chart of the total number of hours worked per year in the U.S. by multiplying total employees by average annual hours worked:

    (click to enlarge)

    Second, here is a chart of the average hours worked in the U.S. per week per capita:

    (click to enlarge)

    This is why household incomes are down for the working class, we're working less hours.

    Third, here is a chart showing the percent of the total population that is employed in a job in the U.S.:

    (click to enlarge)

    This chart above is the most depressing as for what the future might hold for employment in the U.S. because if this percent continues to go down just back to the levels of the 1970's or even the 1960's, that means we'll have no job growth in the years or even decades ahead. It's depressing in the sense that we have such a high percent of the total population that wants work because of the need to pay debts and the high percent of woman in the work force. Even more of a concern is the already high percent who have become more and more dependent on income from the State Vs. the income from an employer.

    It is true that the economy of today is substantially different from the economy of 1960. Back then, stores were closed on Sundays and woman were far more likely to be employed in the home, running the household economy Vs. participating in the job market. However, between outsourcing and tremendous gains in productivity, the demand for more labor in the U.S. has diminished and has the potential to continue to do so.

    Here is a forth chart showing the labor force participation rate:

    (click to enlarge)

    All of these charts show a labor market in the U.S. that is relentless in its decline. No different than the relentless decline in labor in Japan that has been occurring for over 20 years.

    Despite declining aggregate hours worked, an economy can still grow. It can still grow because of gains in productivity that come from gross fixed capital investment. Investments that give us better tools and software to be more productive. Investments that give us more energy efficient homes and the like.

    So despite less hours worked, the output per hour worked continues to rise thus giving an aggregate rise in GDP per capita.

    Here is a chart of Real GDP per capita in Japan and the U.S. since 1960:

    (click to enlarge)

    For the U.S., if job growth remains in decline per the trends in the charts above, our economic growth going forward will have to come from gains in productivity just like that is where the economic growth came from in Japan post 1990.

    One problem with that is, in the U.S., gross fixed capital formation has collapsed as a percent of GDP.

    See this chart below of gross fixed capital formation as a percent of GDP:

    (click to enlarge)

    This "tide going out" as I like to refer to it, of jobs and aggregate "work" in the U.S. being in decline makes buy and hold as an investment strategy of equities more risky. I'm basing this on Japan's experience with the Nikkei.

    We're already seeing the signs of another possible leg down in the total percent of the population that has a job.

    Here is a 1 year bar chart showing 3 months of flat to down growth on that data set:

    (click to enlarge)

    America's Job growth looks like another leg down could be coming up.

    Less jobs means less payroll tax collection, less Federal and State income tax collection and more unemployment benefits that'll need to be paid, which would be a huge setback to the need to bring down the budget deficits, not just the Federal deficit but state and local deficits that are all across America.

    This could prove harmful for U.S. businesses and especially profits which should send share prices lower. A clear breakdown in the percent of the population that is employed would be a sign to lighten up on U.S. equities.

    America faces big challenges ahead, we must stay positive and remain confident that the virtues of hard work and prudence will win over our coming economic shortfalls.

    Disclosure: I am long SH. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

    Themes: economy Stocks: EWJ
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Comments (2)
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  • untrusting investor
    , contributor
    Comments (9933) | Send Message
     
    A clear breakdown in the percent of the population that is employed would be a sign to lighten up on U.S. equities.

     

    Huhhhh.... well is that not exactly what has been happening (4th chart) in the US since the year 2000?
    27 Sep 2012, 05:33 PM Reply Like
  • Jason Tillberg
    , contributor
    Comments (1241) | Send Message
     
    Author’s reply » yeah, that's the participation rate but the one above that goes in waves up and down and it's when that wave goes down that we have seen sell offs in stocks, coupled with recessions.

     

    I'm trying to give perspective on our aggregate employment and this rather relentless decline per all 4 charts.
    27 Sep 2012, 07:37 PM Reply Like
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