NEW YORK (BBH FX Strategy) -- The March U.S. jobs report will be released Friday, Good Friday, when many European countries are on holiday and the U.S. is partially on holiday. Unlike the proverbial falling tree that may not make a sound if there is no one to hear it, the data will be important even if the lack of market participation prevents much of a reaction.Given these circumstances, perhaps what will be more useful than a review of the limited inputs that economists use to forecast the nonfarm payrolls report -- which is among the more difficult of the high frequency data to forecast -- would be a more focused look at the vexing problem of the decline in the participation rate.
This is not rocket science and we are not pretending to offer a forecasting model here. Rather, we simply suspect that the consensus does not sufficiently deviate from the three-month average private sector job growth of 250,000 to be meaningful.
Parents see through the obfuscation in the media and blogosphere that question the importance of a college education. They see the government's misclassification of household education expenditures as consumption rather than investment. Investment it is. Workers with college degrees earn, on average, twice as much as those with a high school degree. The premium has been rising since 1980, when it was 45%. Even before the recession, the real earnings of a high school diploma were at 1970 levels, according to one report. There are other metrics that illustrate the effects of government programs that encourage college education. There has been a marked increase in student loans (Pell) and they have come to dominate the monthly consumer credit report.
In the the 2007-to-2008 academic year there were 5.5 milion Pell loans. The average was for $2600. In the 2009-2010 academic year, the most current data, there were 8.1 million Pell loans. The average was $3700. These loans are also of a special nature. Typically, they are ineligible for cancellation under personal bankruptcy. There are also tax credits up to $2500 a year. This has benefited some 9.4 million students in the 2009-to-2010 academic year. While these are modest amounts compared to the cost of a college education, the main point is that an important part of the decline in the overall participation rate can be traced to the rise education enrollment. Educational institutions are fulfilling their economic function by keeping people out the labor market and increasing their skills.
In part, this may reflect the beginning of the retirement of the Baby Boom Generation, but the marked increase since the crisis began suggests other forces may be at work. There is no concrete evidence that explains it, but it is reasonable to suspect that the economic conditions are such that some, for example, may be choosing early retirement and others may be starting their own businesses. Data on loans against 401(k)s or early withdrawals, or liquidation of annuities, is only now beginning to be collected. There has been a rise in the value and number of loans from the Small Business Administration. In 2009, there were less than 50,000 such loans for a total of $14 billion. In 2011 there were more than 60,000 loans for about $25 billion.