U.S. Non-Farm Payroll Growth Stagnates In The 21st Century

by: The Mays Report

By G.C. Mays

When the BLS released August employment numbers last week it estimated that employers added 96,000 people to non-farm payrolls during the month while the household survey showed job losses of 119,000. What was more startling was that since January of 2001, non-farm payrolls have basically stagnated. At 133.3 million, non-farm payrolls have only grown by 1.1 million over the last 11 years.

Source: The Mays Report

The dates selected represent the beginning of a new presidential term. The graph also illustrates that household employment increased by 4.3 million over the same period. However, these jobs may or may not have any economic impact. In fact, since January 2009 total household employment has dropped by roughly 100,000 as these types of jobs are generally dependent on domestic demand, which has been weak in many countries around the world as well as the U.S.

The household survey includes non-farm payrolls plus those engaged in productive activity. However, for those engaged in productive activity such as freelancers, income is generally inconsistent and thus, can overstate the potential economic impact of being counted as employed, which is why the BLS uses the non-farm payroll number as the headline. For a complete explanation of the differences between the two surveys read an earlier article entitled "Household Vs. Payroll, Which Survey Is Most Exact Employment Measure?"

Between January 2001 and August 2012 the working-age population grew by an average of 213,000 per month, or 29.7 million people. Contrary to popular belief growth of the working age population is accelerating and not declining.

Source: The Mays Report

That's 11 years of working-age population growth with almost no place for new work force entrants to place themselves, hence the stagnate size of the labor force. In December of 2011 I asked the following question, "Has The Size Of The U.S. Labor Force Reached Its Peak?" At the time of publication the size of the labor force had peaked at 154.9 million in May 2009 and been range bound between then and November 2011. In May of 2012 the labor force size finally went over 155 million. However, the increase only lasted through July, as the August report shows the labor force size has dwindled to 154.6 million as people have again become discouraged and left the labor force.

Given the small gains in overall non-farm payrolls during in this century, its surprising that we have been able to sustain any sort of GDP growth at all given that income is the basis of consumption and consumption is roughly 70 percent of U.S. GDP.

Source: The Mays Report

As long as non-farm payrolls continue to grow at an anemic rate investors can expect companies with limited exposure to emerging market economies and a high degree of susceptibility to U.S. consumption to underperform companies with a strong emerging market presence over the longer term. U.S. multinationals now see the world as one large labor pool where companies select the lowest available wage for a given level of skill. This is unlikely to change in the near term unless there is a philosophical shift from profits to patriotism, which is unlikely.

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