THE US LABOR FORCE PARTICIPATION RATE SINCE 2007

The White House has released a new report titled 'The Labor Force Participation Rate Since 2007" which seeks to explain why the labor participation rate in the United States has fallen since the final quarter of 2007 from 65.9 percent to 62.8 percent in the second quarter of 2014.


"In 2008, the U.S. economy collided with two historic forces. The first force was the Great Recession, the most severe economic crisis in a generation. While the economy has recovered considerably over the last five years, there is little doubt that more work remains to address some of the challenges left in the wake of the Great Recession. The turmoil of 2008 inflicted tremendous pain on millions of families, overshadowing the fact that 2008 also marked a unique milestone in U.S. economic history. That year, the first baby boomers (those born in 1946) turned 62 and became eligible for Social Security early retirement benefits. This second force—the demographic inflection point stemming from the retirement of the baby boomers—was felt far less acutely than the Great Recession, but will continue to have a profound influence on the economy for years to come, well after the business cycle recovery from the Great Recession is considered complete.


In addition to these inflection points in 2008, a number of longer-term trends had been playing out in the U.S. labor force prior to 2008—and have continued since then. These include the nearly continuous decline in labor force participation rates for prime-age males (i.e., age 25-54) since the mid-1950s and the dramatic rise in labor force participation rates for prime-age females in the 1970s and 1980s followed by a stalling and slight trend decline after the late 1990s.


Summary of the Main Results


Since the final quarter of 2007, the labor force participation rate has fallen from 65.9 percent to 62.8 percent in the second quarter of 2014, a decline of 3.1 percentage points. In this report, the Council of Economic Advisers estimates that this 3.1 percentage point decline can be attributed to three main sources:


About half of the decline (1.6 percentage point) is due to the aging of the population.
Because older individuals participate in the labor force at lower rates than younger workers, the aging of the population exerts downward pressure on the overall labor force participation rate. While older workers today are participating in the labor force at higher rates than older workers of previous generations, there is still a very large drop-off in participation when workers enter their early 60s.


About a sixth of the decline in the overall participation rate (0.5 percentage point) is a cyclical decline in line with historical patterns in previous recessions.
While the unemployment rate has come down from a peak of 10.0 percent in October 2009 to 6.1 percent in June 2014, it has remained elevated for the last several years. Historically, elevation in the unemployment rate is associated with a decline in labor force participation, as potential workers may decide to defer looking for a job until the economy improves. A portion of the most recent decline in the participation rate reflects this historical pattern, which this report refers to as the “cyclical” effect.


About a third of the decline (1.0 percentage point) arises from other factors, which may include trends that pre-date the Great Recession and consequences of the unique severity of the Great Recession.
In particular the two elements of this “residual” not explained by the standard factors are:
  The fact that participation rates conditional on age were declining for many groups in the run-up to 2008, including for prime-age men from the 1950s and for prime-age women from the late 1990s, may also have contributed to the decline in participation. This would have been expected to result in a decline in the participation rate above and beyond the pure aging effect even in the absence of a recession. Note, these effects were partly offset by other pre-existing trends, like a rise in the participation rate for older workers.
  The severity of the Great Recession, which has resulted in an unusual pattern of a very large share of long-term unemployed relative to total unemployment, may have lowered the participation rate more than would have been expected through normal channels. In fact, we find that a declining participation rate is historically correlated with the elevation of long-term unemployment, suggesting that both issues have a common cause or cause each other."


The Obama Administration is proposing three steps to change the downward trend. 


"First, immigration reform would raise the size of the labor force as well as boost participation rates and could largely offset further declines in participation due to aging. Second, adopting family-friendly workplace policies can boost female labor force participation. For instance, many states are currently considering adopting paid leave policies, and evidence suggests that the availability of paid leave and other family-friendly policies could increase the participation of women by about 7 percentage points (Blau and Kahn, 2013). Third, the long-run decline in participation among men, especially minority men, is unsustainable, and the Obama Administration is aggressively pursuing policies aimed at stemming these declines. Finally, in the near-term, the recovery from the Great Recession remains incomplete, and steps to strengthen the economy and encourage best practices for hiring the long-term unemployed can still make a major difference."


A complete copy of the report can be found at http://www.whitehouse.gov/sites/default/files/docs/labor_force_participation_report.pdf

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$55 MILLION FINE FOR US CONTRACTOR

Assuming that the size of a fine has some relationship to the size of the fraud, this one is truly noteworthy.

According to respected industry magazine Engineering News Record, a US contractor has pleaded guilty to fraud charges and will with pay a $55 million fine related to client overbilling and falsified recordkeeping arrangements. http://enr.construction.com/business_management/ethics_corruption/2014/0430-contractor-structure-tone-agrees-to-pay-55-million-in-fraud-plea.asp  Below, in blue, is an extract from the article.


"Structure Tone Inc., the New York City-based building and interiors construction giant, pleaded guilty to fraud charges in a Manhattan court April 30 in a client overbilling and falsified recordkeeping arrangement, and will pay $55 million.

Manhattan District Attorney Cyrus R. Vance, Jr. said that, according to Structure Tone’s guilty plea and documents filed in court, between 2005 and 2009, the company "required the subcontractors on CM jobs to increase their bids by adding, in many cases, unnecessary contingencies listed in an addendum provided by [the contractor] called the 'Rider B.' This practice was concealed from the ... clients."

The firm then obtained added discounts from subs that were not passed along to clients, says Vance. Structure Tone created fraudulent purchase orders that omitted subcontractor discounts, with subs holding overpayments for the contractor, according to the district attorney statement.

Structure Tone "recovered these overpayment amounts by inducing these same subcontractors to provide discounts to [it] on other unrelated GC projects," says Vance.

Under the plea agreement, Structure Tone will allow the D.A.'s office to review selected projects to insure "the safeguards [the firm] put in place are, in fact, working," says the court document.

The contractor says that since about 2010, it has instituted new purchasing guidelines and trained its staff in their use. It also "has made Rider B transparent to all clients" and installed accounting procedures to track its use, according to the court document.

Structure Tone also has "issued directives to purchasing agents to ceast the practice of obtaining undisclosed discounts from its subcontractors," the plea says."


While it is a tragedy for the industry that any contractor would act to defraud its clients, it provides yet another good reason for prudent owners to hire a professional Quantity Surveying firm to represent them (and thereby protect their pocket-books) on any construction project.

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CONVENTIONAL WISDOM HAS A BIRTHDAY!!!!

Happy anniversary to our colleagues at Conventional Wisdom Corp www.cwisdom.com, a Rider Levett Bucknall company, who are now entering their 19th year of providing strategic management consulting services to meeting and convention venues worldwide. During its existence, CW has served 255 facilities, containing almost 60 million square feet (6 million square metres) of exhibition space, located on every inhabited continent, and representing all types of exhibition and conferencing destinations. Congratulations team CW!!!!!

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WHAT I LEARNED FROM FRANK FROM MICROSOFT

I am an avid fan of both the Microsoft Surface tablet(s) and Microsoft's Windows Phone because they perfectly suit my way of mobile working.


A few weeks ago I was sitting in the United Airlines Club waiting for a flight when another traveler saw me using my Surface RT tablet and asked me how I liked it. I told him that I liked it a lot and the discussion got around to what I specifically liked about it compared to the Surface Pro (I have one of those too). Making a long story short, as he was leaving the Club, the traveler introduced himself as Frank, a Microsoft Corporate VP, and he thanked me for being a loyal Microsoft customer and asked me to send him my contact details, which I did. Today, Frank dropped by my office and delivered a ‘thank you’ gift from Microsoft’s product line


Here’s what I learned from my interaction with Frank:


1. At successful companies, every employee looks to get customer feedback whether good or bad.  This wasn’t the first time that a Microsoft employee had seen me using one of their products and asked me how I liked it and what I thought any shortcomings might be.


2. Not only did Frank thank me, he also followed up, in person.  I told many people about my meeting with Frank including just how impressed I was that someone from Microsoft was genuinely interested in how I liked their products. The lesson for anyone in business is to actively inquire from customers how the customer feels about the level of service being provided and then follow up in person.


3.Use interactions with customers to tell them about upcoming improvements or innovations in the product or service offering.  Frank certainly gave me an insight into the efforts Microsoft is making to improve on the products that we spoke about. For professional service firms, clients are truly interested in knowing what the firm is doing to improve the level of service and about any innovations that will benefit them directly.


Whether or not you are in love with Microsoft, everyone in business can learn something from my experience with Frank about creating great customer relations.

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THE BUDGET AND ECONOMIC OUTLOOK: 2014 TO 2024

Earlier today the Congressional Budget office issued its paper "The Budget and Economic Outlook: 2014 to 2024"

Among its key forecasts was this helpful summary:


"The Congressional Budget Office (CBO) projects that, under an assumption that current laws governing federal taxes and spending remain in place, economic activity will expand at a solid pace in 2014 and the next few years. Increases in housing construction and investment by businesses will boost overall output, employment, and incomes, and, therefore, consumer spending; in addition, federal fiscal policy will restrain the growth of the economy by much less than it has recently. As measured by the change from the fourth quarter of the previous year, real (inflation-adjusted) gross domestic product (GDP) is projected to increase by 3.1 percent this year and by 3.4 percent per year in 2015 and 2016; by comparison, real GDP increased by 2.7 percent in 2013.


Nevertheless, CBO estimates that the economy will continue to have considerable unused labor and capital resources—or “slack”—for the next few years. According to the agency’s projections, the unemployment rate will decline gradually but remain above 6.0 percent until late 2016. The labor force participation rate (the percentage of people in the civilian noninstitutionalized population age 16 or older who are either working or are available for and actively seeking work), which has been pushed down by an unusually large number of people deciding not to look for work because of a lack of job opportunities, will move only slowly back toward the level it would be without the cyclical weakness in the economy. The substantial amount of slack remaining in the labor market and elsewhere in the economy will help to keep the rate of inflation, as measured by the price index for personal consumption expenditures (PCE), below 2.0 percent during the next few years."


While not entirely joyful, it does envision relatively low inflation in the general economy and a modest rate of growth for the next few years.

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THE US ECONOMY IS EXPECTED TO GROW BY UP TO 3% THIS YEAR – BUT WHAT DOES THIS MEAN FOR OUR INDUSTRY?

For the last few years (since 2009), a number of forecasters have predicted economic growth in the US at the start of the year, but have subsequently been undone by events.

Although not everyone agrees, it now looks as if we will finally see the economy growing in 2014, by maybe as much as 3%. While not conclusive, there are a number of signs of a recovering economy. Unemployment is down (but only to 7%), consumer spending is rising and there is a revival in the manufacturing sector.

The housing market in particular is recovering. Builders started work on 20% more single-family houses in the first 11 months of 2013 than in the year-earlier period and home prices are at all-time highs in 10 of the 50 largest metro markets.
So, what does this mean for the construction industry?
McGraw Hill predicts that total U.S. construction starts for 2014 will rise 9% to $555.3 billion, with three very strong sectors - single family housing (24% increase in units), multifamily housing (9% rise in units) and commercial building (up 17%,) led by warehouses and hotels. In contrast, public works construction will drop 5% and electric utility construction will retreat by a massive 33%.
Not everywhere is likely to be so buoyant. Although the outlook for construction is generally positive, bright spots will be particularly evident in some of the hardest hit areas of the Great Recession. The residential market is improving where it was hit the hardest and geographic areas with oil and gas shale formations are experiencing energy-related growth.

Mainly good, then, but with construction employment beginning to approach 6 million workers, there are now stories in the financial and trade press of trade labor shortages slowing down projects. With a failure to improve productivity like we have seen in industrial and retail sectors, there is increasing demand for technology to be incorporated into the construction process.

We at RLB expect to see the construction industry continue to improve through the year driven by post-recession 'catch-up' and investment inflows from overseas (especially China).

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YELLEN ON INFLATION

At today's confirmation hearing at the Senate Committee on Banking, Housing and Urban Affairs, Federal Reserve System Board of Governors Vice Chair Janet Yellen said this about the Fed's inflation goals:

"So the objective here is to assure a strong and robust recovery so that we get back to full employment, and that we do so while keeping inflation under control. It's important not to remove support, especially when the recovery is fragile and the tools available to monetary policy -- should the economy falter -- are limited given the short-term interest rates are at zero. I believe it could be costly to withdraw accommodation or to fail to provide adequate accommodation.

On the other hand, it will be important for us, also, as the recovery proceeds, to make sure that we do withdraw accommodation when the time has come. My colleagues and I are committed to our longer run inflation goal of 2 percent, and we will need to ensure that, as the recovery takes hold and progresses, that we will also exit or bring monetary policy back to normal in a timely fashion."

Low inflation will be good for the construction industry, right up to the point that it causes a "bubble"; in my view, it will be very hard for the Fed to get the timing right on this.

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