Paper Money - A US Real Estate Bubble Blog

On The Stamp: Food Stamp Participation October 2008

Posted: 09 Jan 2009 05:09 PM CST

As a logical consequence of the prolonged economic downturn it appears that participation in the federal food stamp program is on the rise.

In fact, household participation has been climbing so steadily that it has surpassed the last peak set as a result of the immediate fallout following hurricane Katrina.

The latest data released by the Department of Agriculture shows that, on a year-over-year basis, household participation has increased a whopping 14.42% while individual participation, as a ratio of the overall population, has increased 13.32%.

October's numbers show a slight decline for both household and individual participation from September as a result of declining temporary relief for hurricane effected regions.

However, participation is still climbing dramatically, likely as a result of the recent jump in total unemployment, driving the nominal benefit costs up 33.79% on a year-over-year basis to $3,697,771,433 for the month.

Looking at the last chart that plots the total unemployment rate (unemployment rate of all traditionally unemployed workers plus all marginally attached and part time workers) and the population adjusted individual program participation rate normalized since 2005, one can plainly see that program participation would be expected to continue its surge.

On The Margin: Total Unemployment December 2008

Posted: 09 Jan 2009 04:45 PM CST

Today's Employment Situation report showed that in December "total unemployment" jumped dramatically, nearly 1%, to 13.5% of the civilian population or 20,850,000 workers.

The traditional unemployment rate is calculated from the monthly household survey results using a fairly explicit qualification of "unemployed" (essentially unemployed and currently looking for full time employment) leaving many workers to be considered effectively "on the margin" either employed in part time work when full time is preferred or simply unemployed and no longer looking for work.

The Bureau of Labor Statistics considers "marginally attached" workers (including discouraged workers) and persons who have settled for part time employment to be "underutilized" labor.

The broadest view of unemployment would include both traditionally unemployed workers and all other underutilized workers.

To calculate the "total" rate of unemployment we would simply use this larger group rather than the smaller and more restrictive "unemployed" group used in the traditional unemployment rate calculation.

Below is a chart (click for larger version) showing the "total" unemployment rate versus the "traditional" unemployment rate along with the year-over-year percent change to the "total" unemployment rate.

Notice that the "total" unemployment rate has been skyrocketing as of late and has now with the latest 40% year-over-year increase has reached the highest level seen since the government began tracking the many measures of marginalized workers.

The chart below (click for larger) calculates the spread between the "total" unemployment rate and the "traditional" unemployment rate.

Notice that while the total unemployment rate has increased 55% since last year, the difference between the total unemployment rate and the traditional rate has jumped nearly 67%, its highest annual increase on record leaving the spread at its widest on record.

Envisioning Employment: Employment Situation December 2008

Posted: 09 Jan 2009 11:56 AM CST

Today's Employment Situation Report showed continued unequivocal and truly dramatic signs of a severely contracting recessionary economy with the Household survey indicating a decline of a whopping 806,000 in employment and a 632,000 increase in unemployment since November resulting in an unemployment rate of 7.2% while the Establishment survey showed a massive decline of 524,000 non-farm jobs over the same period.

Further, there were considerable revisions to prior months with October actually registering a whopping 423,000 non-farm job decline from September and November registering 584,000 non-farm job decline from October resulting in over 1,934,000 million non-farm jobs lost in just four months and 2,691,000 private non-farm jobs shed so far this year.

With the latest news just littered with poor earnings reports and announcements of job cuts and layoffs cutting across all regions and most industries, the recessionary job loss trend now appears to be following a far more severe trend than seen during our prior two recessions.

The following chart combines both the "residential building" and "residential specialty trade contractors" into one payroll series and then plotting the data since 2002.

Notice that, in aggregate, these payrolls, having peaked in March 2006 and declined 20.79% or 718,000 jobs since then, appear to be headed lower.

Also note that independently, "residential building" has lost 23.42% of its payrolls or 239,000 jobs since it peaked during September 2006 and that "residential specialty trade contractors" have lost 19.93% of its payrolls or 486,500 jobs since it peaked during February 2006.

Next, let's take a look a slightly broader set of industry sectors that have been directly impacted both by the housing boom and now the bust (click for larger chart).

Note that I carefully selected sectors that showed either an obvious expansion-to-contraction trend OR a flattening-to-contraction trend and that ALL sectors have both a historical and logical relationship to residential housing as well as recent industry press releases disclosing declining profits as a result of the housing bust.

As you can see, sectors that are now being directly impacted by the current housing decline are numerous and cut across many levels of the job market from construction and materials to manufacturing and finally to retail.

Combining these series into an aggregate of payrolls "directly impacted" by the housing boom and bust cycle and plotting it, along with the S&P/Case-Shiller Composite Home Price Index (click on chart below for larger version) since 1997 provides some pretty solid evidence that a relationship exists.

To expand the analysis a bit look at the following chart that shows percent change on year-over-year basis to BOTH the "directly impacted" payrolls sectors and ALL private non-farm payroll overlaid with the S&P/Case-Shiller Composite Home Price Index.

To get a sense of the relative intensity of the pullback to the "directly impacted" payrolls by plotting both the percentage of overall private non-farm payrolls that the "directly impacted" aggregate represents as well as the contributions it is making to the rate of change of the underlying total private non-farm payrolls.

Notice that at its peak the "directly impacted" payrolls represented over 6.67% (now 6.08%) of Total Private Non-Farm Payrolls and now contracted to a far more significant degree than that seen during the entire course of the 2001-2003 contraction.

Plotting the ratio of overall and private non-farm payroll as well as the payroll of various business sectors to overall non-institutional population (above 16 years old and not in jail or "juvee"), the last eight years seem to pose more questions than answers.

The payroll-population ratio concept simply provides a mechanism for better isolating the changes to payroll rosters by calculating the percentage of population that is employed in a given sector at any given time.

In the following chart (click for larger version) you can see the ratio of overall non-farm payroll and private non-farm payroll to non-institutional population from 1948 overlaid with all U.S. recessions in that period.

As you can see, there is a fairly strong correlation to declining percent of population employed in non-farm and private non-farm endeavors and recession with particularly good peak-trough alignment for all recessions prior to 1990.

During the 2001 recession (and to a far lesser extent in 1990), although there where large declines to the ratio during the official recession period, the economy seemed to be able resume growth while the ratio continued to slide or stayed well below the peak of the prior expansion.

This is an interesting situation in that, although increases in population have been steady and could have replenished the literal number of jobs lost during the downdraft of 2000-2003, the 2000s expansion of payrolls was not strong (jobless recovery).

The following chart (click for larger version), on the other hand, the payroll ratio related to construction has remained above even the peak set in the 90s expansion but now seems to be coming down.

As you can see, although 2.91% of the population currently is employed in a construction occupation, there is a chance that this percentage could drop far below the trend.