Nonfarm Payrolls Haven't Kept Pace With Population Growth

by: The Mays Report

By G C Mays

The Bureau of Labor Statistics employment situation report for January estimates that non-farm payrolls increased by 243,000, with private companies adding 221,000 to their payrolls, while the unemployment rate dropped to 8.3 percent. That beats estimates by Automated Data Processing (NASDAQ:ADP), which estimated that private non-farm payrolls increased by 170,000 during January.

While the most recent employment report data has been positive, the reality is that payroll employment and labor force participation in the US has fallen off the pace of working age population growth since the turn of the century. Non-Farm payrolls peaked in December 2007 at 137.8 million, just one month before the beginning of the most recent recession, which lasted from December 2007 - June 2009, according to the National Bureau of Economic Research.

Non-Farm payrolls Jan 2000 - Jan 2012
Source: The Mays Report

With 132.4 million people listed on non-farm payrolls through January 2012, we are roughly 5.4 million jobs short of the previous peak in payroll employment. In fact, payroll employment remains at levels first seen just before the March to November 2001 recession, which lasted only eight months with non-farm payrolls peaking at 132.3 million. Prior to today's report, the last time payroll employment in the US reached 132.4 million people was between December 2004 and January 2005.

The problem with this is there is one thing there is no escape from and that is the growth of our working age population. In January 2000, there were 130.9 million people on non-farm payrolls and 209.3 million people of working age. In the last 12 years the working age population in the US has increased by roughly 31.3 million while non-farm payrolls stand just 1 million higher at 130.9 million people.

Growth of working age population & Non-farm payrolls
Source: The Mays Report

The above graph illustrates that the growth of the US working age population is relentlessly constant. If jobs are not available for an expanding population, our employment to population ratio will begin to decline and GDP growth has to slow. When was the last time the US had real GDP growth of 4.0% or better? The year 2000.

Real Annual GDP Growth 1975-2011
Source: The Mays Report

The US has not had annualized GDP growth higher than 3.5% percent since 2000.

Consumption represents 70 percent of US gross domestic product and current income is the most relevant determinant of consumption. Most Americans earn income from employment and wages. Without payroll employment levels resuming its previous strong relationship to working age population growth, the US cannot grow at 4 to 5 percent annually and will stay in a 1% to 2% rate of growth indefinitely.

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