Look: I am eager to learn stuff I don't know--which requires actively courting and posting smart disagreement.

But as you will understand, I don't like to post things that mischaracterize and are aimed to mislead.

-- Brad Delong

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Wednesday, December 7, 2011

Misreading a Trend

At CR, one of the readers sent in a chart of the employment to population ratio, ages 16 and up.  That reader expects the ratio to increase to 65%, based on his view of the trend line.  Here is the post and here is a screen shot of the chart.

Bill McBride at CR says:  "I think this forecast is incorrect - and this gives me a chance to discuss the participation rate and employment-population ratio."

He goes on to give fundamental reasons for why he disagrees, and every bit of that is right.  You can also say that the forcast is incorrect just by taking a look at the trend.  Sorry the picture got fuzzy when I grabbed it.  The screen shot linked above should be crisp.

I'm not at all sure that the dotted trend line has any validity at all, but let's just go with it - or at least with a channel that is close to parallel to it, outlined in green.  The data line tops out at about 64.5% around 1999.  After a secondary peak around 63.5 and 2007, it's been a near-vertical drop.  The smash through the bottom of the channel - which I've placed a low as is reasonable - is dramatic and convincing.  It's been quivering just above the 58% level for a couple of years, now.  

It seems quite plain - I would say self-evident - that the old trend has been broken.

Calculated Risk has a follow-up post on employment to population, broken down by age group.  McBride concludes: "Forecasting the participation rate is important (along with population growth and other factors) in projecting how many jobs are needed to bring the economy back to full employment So I'll be writing more about this ..."

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