The Time of the Season

July 23rd, 2013

by Eric Schaefer

Sometimes we can be oblivious to the obvious.

June is the month of the year when graduates emerge from the cocoon of high school and college. As they emerge, cap and gown is shed for suit and tie, a diploma gives way to a resume and the goal of making varsity is eclipsed by the objective of gaining employment with a top multi-national corporation.

Every year, without fail, this ritual transition from student to wage earner is completed. And, every year, without fail, this metamorphosis results in a surge in the U.S. civilian labor force in June. As a matter of fact, on a non-seasonally adjusted (NSA) basis, the civilian labor force has increased (in June) for each of the last 66 years; or, ever since, the Bureau of Labor Statistics (BLS) has been keeping track of this annual demographic migration. This influx of new entrants to the labor force occurs regardless of how the economy is faring in any particular year.

Because the academic year, in most school districts and for most universities, runs from September to June, this cycle varies from the January to December calendar year used for economic statistics. Consequently, a mismatch occurs, introducing a pronounced seasonality in the monthly ups and downs of the civilian labor force. In a typical year, June's surge is matched by a small aggregate net decline or increase for the remaining eleven months. A seasonal adjustment is necessary to smooth out this wave, assigning a portion to the other months in the calendar year.

How large is this blip? Very large. In June, the civilian labor rose by 1.4 Million on a non-seasonally adjusted basis. In comparison, the civilian labor force contracted by 650,000 over the prior eleven months — from July 2012 to May 2013. This period is not anomalous. In June 2012, the labor force rose by 1.4 Million. And, it rose by a net 460,000 over the prior eleven months — or, just 42,000 per month.

Another way to illustrate this seasonality is to analyze the aggregate change over the past 66 years. If we consider just June alone, then in the last 66 Junes, the civilian labor force increased in aggregate by 120.4 Million workers. This compares to a net change of 98.4 Million ( from 58.7 to 157.1 Million) workers measured on a calendar basis. The difference (of 22.0 Million) reflects workers who have exited the labor force during other months over this time span.

People exit the labor force for a variety of non-economic reasons at different times in the year. Retirement is a key reason why workers exit the labor force each year. Disability is another. To start and raise a family constitutes a third. To return to school full-time is a fourth. And, finally, a spouse may cease working simply because his or her partner earns enough for both (and any children) to live comfortably. Then there are the economic reasons. The principal reason is that job growth is so anemic that people simply give up seeking employment. Remember, to be counted in the civilian labor force one must either be employed or actively looking for work. So-called discouraged workers are those who have given up their search, and are thus no longer counted in the civilian labor force.

In the aftermath of the June employment situation report, media pundits in their rush to find nuggets of good news (in what once again can only be described as a mediocre report) made much of the reported increase in the civilian labor force. This, they asserted, was a sign that the discouraged were coming back to the job market. Alas, there is less to this observation than the hope behind it. The entire 1.4 Million (NSA) increase in the civilian labor force was caused by the 2.1 Million (NSA) surge in the 16 to 24 year old cohort. So, in other words, 700,000 workers in other age groups dropped out of the labor force ranks. Demographics (of the "baby boomlet") and not an improving economy explain the trend.

Sometimes we can be oblivious to the obvious; especially when we confound the seasonal with the cyclical or the secular.

Notes on Sources, Methods and Definitions:

All statistics cited based on non-seasonally adjusted (NSA) series obtained from the Bureau of Labor Statistics (BLS). As description implies, a NSA series has not been adjusted for regular seasonal factors or influences which may affect observation values. This report discusses one such influence on the size of the civilian labor force from month-to-month.

The civilian non-institutional population is the population over age 16 that is not in the military or confined to a criminal or mental institution.

The civilian labor force is a sub-set of the population defined as individuals over age 16 employed full-time (>35 hours per week) or part-time (<35 hours per week), or, who are unemployed but are actively engaged in seeking employment.

The population age 16 and over not employed or seeking work are categorized as not in the labor force.

(Sources: BLS; AIFS estimates.)

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