Employment To Population Ratio Lagging

The stock market, we are told, is not the economy.  Except that it really is, in a lot of ways.  But there are lags in the way that the movements of stock prices get echoed in other things which matter.

This week's chart is one that I shared here back in March 2023, comparing the SP500 to the Civilian Employment/Population Level.  The first curious point about this relationship is that tops in civilian employment tend to coincide with tops in the stock market.  But bottoms for jobs tend to lag the bottoms in the stock market by about a year.  The actual amount of the lag varies each cycle, but 12 months is a useful rough average of that lag time.

This is important right now because the data for the Employment/Population Level just ticked higher, from 60.0 in July and August 2024 to 60.2 in September 2024.  That may not seem like much of a rise, but it may be the sign that these data finally had the bottom which was foretold by the bear market all the way back in 2022. 

That price decline bottomed on in October 2022, so counting 12 months forward should have meant a bottom for the Employment/Population Level in October 2023.  But we did not get the bottom until July/August 2024, assuming that we have indeed seen the bottom.  And we are not yet seeing much of an upturn, even though stock prices have been rising.

There are some really good reasons for this.  Boomers are leaving the workforce, but they still count in the "population" part of that measure.  The post-WW2 baby boom in the U.S. lasted from 1946-1964, so the people in that demographic bulge are now 60-78 years old.  It is understandable that they would be leaving the workforce, and thus that the current nominal level would be less than the high of 64.7% that we saw in April 2000, just as the Internet Bubble was peaking. 

Boomers retiring may explain that overall drop, but it is harder to use that factor to explain why the lag time has stretched to 21 months before an upturn instead of the normal 12 months. 

It is also worth commenting on the big down spike in employment in 2020, due to the Covid shutdowns.  That event was not a normal function of economic forces and lags, but rather one of governments putting a thumb on the scale.  So it is best for the reader to put a thumb over that part of the chart and ignore it as not being representative of economic physics. 

It is also worth noting that the Employment/Population Level was slow to rise in 2009-2014.  But then it started rising rapidly in 2015, which was AFTER the federal government ended its extended unemployment benefits.  It is amazing how people respond to changes in incentives.

The current data for the Employment/Population Level in 2024 are also in question due to the big surge of immigrants into the U.S.  The counting of the numbers of employed people is different from the counting of the population, and some of those recent immigrants who are working may be doing so in the underground economy, where their jobs are not counted.  So if the population counters are tabulating them somehow but the job counters are not, then that throws off the math.  I do not profess to know how well either type of counting is being done.  I can only work with the data that the government releases.

What I can say is that those who are wishing for a robust economy and jobs market had better hope that the stock market keeps rising.  Because history is pretty insistent on the point that a top for stock prices brings an almost immediate top for the Employment/Population Level.