There Are Now 8.6 Million Missing American Workers

Everyone knows how unemployment surged through the roof. In a span of two weeks, 10 million people claimed filed for unemployment benefits. The scale is unimaginable. Look at the chart.

But what is less publicized is that the Civilian Labor Force Participation Rate (LFPR) dropped by 0.70% in one month, from 63.4% in February 2020 to just 62.7% in March 2020. So, over 1.6 million people dropped off from the labor force and have gone missing.

There are now 8.6 million people missing from the labor force since the Great Recession began in December 2007 because the LFPR dropped from 66.0% pre-recession to a current 62.7% today.

We are now back to August 2018 levels. This figure reflects only the 3.0 million people that became unemployed in the last week of March 2020. In the first week of April 2020, 6.6 million more people became unemployed, which will lead to further and bigger drops in the Civilian Labor Force Participation Rate for April.

Is Greece Done with Deleveraging?

Is Greece done with deleveraging? It's been deleveraging for over 10 years now. Credit to GDP is down from a peak of almost 140% of GDP to 110% of GDP.

How Did the US Stock Market Perform During the 1918 Spanish Flu Pandemic?

During the 1918 Spanish Flu Epidemic, the first wave of deaths hit its peak of 5 deaths per 1,000 persons in July of 1918. It subsided in August and remained that way for the rest of the summer. Come Fall of 2018, a second and much more lethal wave hit, peaking just below 25 deaths per 1,000 persons in November of 2018. This wave subsided to more normal levels during winter. Then a third wave of deaths hit in February of 2019, lasting until May of that year. About 28% of the US population were infected during this period, leading to an estimated 500,000 to 675,000 deaths (0.48 to 0.64% of the population).

Surprisingly, the stock market during this time period remained remarkably stable. It did not crash. The Dow Jones Indusrial Average Index (DJIA), which was the only US stock market index to exist at that time, shows that the market remained relatively flat throughout 1918 and then soared by almost 50% by the end of summer of 1919.

The DJIA is a price-weighted index that measures the stock performance of the 30 large companies listed in the US stock market and is therefore not representative of the broader market.

The S&P 500 Index is broader-based stock market index because it includes at least five hundred of the largest publicly listed companies in the United States. The S&P 500 is a capitalization-weighted index and not price-weighted. It is constructed by combining the market capitalizations of all the component companies. However, the S&P 500 Index only came into existence in 1957. It did not exist in 1918. So how do we gauge the broader market performance of that time.

Enter Finance Professor Robert Shiller of Yale University has a data set which presents the "US Stock Markets 1871 - Present and CAPE Ratio," which reconstructs or estimates what the S&P 500 Index would have been during the Spanish Flu Pandemic using data on the stocks being traded in the US stock market at that time.

The reconstructed S&P 500 Index showed that the broader stock market did soar not just in 1919 but starting in 1918, when the first wave of the pandemic hit.

So, what gives? Why did it soar?

Simple. The economy soared too. Real GDP soared by 9.02% in 1918, then dropped to a measly growth rate of 0.80% in 1919, according to economists Reinhart & Rogoff.

Why did GDP by 1918 in the midst of a global pandemic? Because the US entered World War I in April 1917 and spent billions on military preparations.

The data from the White House website tells it all.  Government spending soared by 549% in 1918, from just 3.27% of GDP in 1917 to 16.72% of GDP in 1918.

 

Year	Total US Government Revenues and Outlays
	Receipts	Outlays	Surplus or Deficit (-)	Outlays as % of GDP
1914	725	726	-*	1.99%
1915	683	746	-63	1.93%
1916	761	713	48	1.44%
1917	1,101	1,954	-853	3.27%
1918	3,645	12,677	-9,032	16.72%
1919	5,130	18,493	-13,363	23.62%
1920	6,649	6,358	291	7.19%
1921	5,571	5,062	509	6.88%
1922	4,026	3,289	736	4.48%
1923	3,853	3,140	713	3.68%

Source: Whitehouse.gov and Reinhart & Rogoff

The bulk of the increased outlays were for military spending itself. Expenditures soared from just $546 million in 1917 to $7.05 billion in 1918. It drafted 2.8 million men to fight the war in Europe. By the summer of 1918, it was sending 10,000 fresh soldiers to France every day. World War I lasted until November 1918 at the height of the pandemic. When the war ended, so did expanded military spending and GDP growth dropped off considerably.

The economy was kept humming at a brisk pace, unhampered by the lack of quarantines, allowing the pandemic to grow and spread, leading to many more millions of unnecessary deaths. In other words, public health officials did not flatten the curve so as not to cripple the war effort.

Obviously, not flattening the curve today is not possible. It would be political suicide for any government official to let the pandemic run wild.

One obvious lesson we can take away is that massive government intervention, not necessarily in the form of miltary spending, can keep the economy humming, if not soaring, in the midst of a global pandemic. Even Ken Rogoff, known for his hawkish views on government debt, seems to think so.

I mean, there's never been a concern about our government's defaulting. The concern is being able to borrow massively when you need to. That's the whole point of saving for a rainy day. When it rains, you want to really open up the floodgates.

And, here, I just — there's no limit. We're in a war. You have to win the war. I would have no problem with the government debt magically going up $5 trillion in the blink of an eye, if we could get out of this in two or three months healthily.

This is an emergency. You're not worrying about your credit standing right away. I don't think that's going to a problem. And you know what? If we have inflation at the end of this, so what, if that is what we needed to do to win this war. We're trying to protect the American people, protect our interests, protect the future.

This is really — think like World War II, World War I. It's this — tiny little viruses invading us, but you know, make no mistake, this is like a war, an alien invasion.

Maybe we should do the same thing in 2020. Goverment has to step in and pick up the economic slack or we will fall into an economic, financial, and political abyss.

Both China and Hong Kong Have Continued Deleveraging Throughout Most of 2019

Credit to GDP growth has dipped below the trendline for both countries as of the third quarter 2019.

Source:
https://www.bis.org/statistics/c_gaps.htm

How Crazy is the Philippine Real Estate Market? Prices have Climbed Over 63% Since Duterte Took Office!

Philippine house prices have gone parabolic. They have climbed 63.33% since President Duterte took office in the second half of 2016. Year-on-year price increase as of the 4th Qtr 2019 is an astounding 26.28%. Prices have outpaced inflation by a wide margin, 169.37 percentage points.

How long can this go on? Not long, considering sales volumes dropped by more than  25% in 2018, indicating that more and more people cannot afford the high price levels.

Is ABS-CBN Preparing for a Shutdown? Why Have Regularized Employees Been Reduced By Over 60%?

In 2017, ABS-CBN's worker headcount was 11,068 persons as detailed in its 2017 Annual Report. Around 60% of the worker headcount was composed of regularized employees. The rest consisted of Non-Regular Employees, Talents, and Project-Based Employees.

In 2018, ABS-CBN's worker headcount was roughly 2% smaller - only 10,855 person as detailed in its 2018 Annual Report. However, the number of Regularized Employees grew by 2.5% that year. As a result, they comprised a slightly higher percentage of the total workforce - 62%.

ABS-CBN has said time and again that the non-renewal of its broadcast franchise will threaten the livelehoods of its 11 thousand workers. The government claimed otherwise. It said that ABS-CBN only has 4,401 employees.

"In a letter to SolGen Jose Calida dated 21 February 2020, the BIR said ABS-CBN Corp. and ABS-CBN Convergence Inc. have a total of only 4,401 employees, way below the 11,000 the Kapamilya network has been claiming in its efforts to renew its franchise which expires 30 March.

The Internal Revenue based its findings on the Annual Information Return of Income Taxes Withheld on Compensation and Final Withholding Taxes submitted by both ABS-CBN Corp. and ABS-CBN Convergence Inc.

The BIR document showed ABS-CBN Corp. has 4,322 employees while ABS-CBN Convergence Inc. has 79 as of 31 December 2018."

 To counter this confusion, ABS-CBN released this statement detailing that it had 11,071 workers as of December 31, 2019.

It said that 5,918 people worked directly for ABS-CBN. Of this number, only 2,661 people were regular employees. The rest were Project-Based Seasonal Workers, Independent Contractors and On-Camera Talents, and Project Employees. An additional 5,153 unclassified workers brought the total ABS-CBN workforce to 11,071.

Classification	2019
Regular	2,661
Project Based	2,096
Independent Contractors	1,069
Project Employees	92
Subtotal	5,918
Others	5,153
Grand Total	11,071

This reveals that the number of permanent, regularized employees has declined substantially - by over 60%, in fact. The rest are expendable. Non-regularized employees tend to have less rights, less benefits, and can be let go at the discretion of ABS-CBN's management, especially in a country like the Philippines where the wheels of justice tend to turn very slowly.

The reduced regular employee headcount took place at a time when ABS-CBN's revenues have, in fact, increased by a healthy 4.9% over the previous year.

The reduced number of regular employees gives ABS-CBN maximum flexibility to let go of employees in the event of a broadcast shutdown and it switches completely to an internet streaming service.

The question is: Is ABS-CBN fighting for its workers or fighting for the right to exploit its workers?

The Beginnings of Wage Inflation

Last year, we estimated that pointed out that there were still 7.4 million workers missing from the labor force. The presence of so many missing workers would dampen wage growth for some time to come. Today, the number of missing workers is down slightly to 6.8 million workers as of January 2020.

And, true enough, wage growth has remained rather subdued given the low official unemployment rate of 3.6% as of January 2020.

But certain sectors of the labor market are starting to tighten. For instance, the prime age (25 to 54 years old) working group is now reflecting a shortage of workers of 191 thousand people.

This indicates that wages for this age group could tighten in the not too distant future.

The tightness of the prime working age group is not shared equally among the sexes. The labor market for Prime Age Women Workers is very tight, with an estimated shortage of almost 1 million women as of January 2020.

For men, it is an altogether a different story. There are still around 800K Prime Age men missing from the labor market..

This gap for Prime Age men is being filled very slowly, only a few thousand a month. But once that gap is filled, wages should start rising up.

Related Posts: Why There Is Still No Wage Inflation: There are 8.1 Million Missing American Workers