MICHELLE MEYER: The Labor Force Participation Rate's Freefall Is About To Stop

Rob Wile | May 24, 2013, 12:18 PM | 1,024 | REUTERS/Gretchen Ertl

We recently gave you UBS economist Drew Matus' opinion of why the labor force participation rate  — the size of the labor force as a percentage of the overall population — is falling.

Basically, Matus said it's due less to an anemic economy than shifting (especially aging) demographics: there are just more old people still working in America these days.

Now, as noted by Bill McBride, Merrill Lynch's Michelle Meyer has weighed in with her own take, and she basically agrees: 

The two primary secular trends are the decline in the LFPR among the youth population and the rise among 55+. The LFPR for 16 to 19 year olds plunged to 34.3% last year from 52% in 2000. While this may have been accelerated by the past two recessions, we believe this is a permanent trend. On the other end, the LFPR of the older population has increased, likely reflecting higher life expectancy, less confidence in social benefit programs and loss of wealth from the Great Recession.

Meyer goes one step further and offers a projection of where the rate will go from here.

Her answer: sideways, thanks to the cyclically improving economy. Here's her chart:

She writes:

...we forecast the LFPR will slip slightly this year, but with a stronger recovery under way next year, the LFPR should start to level off some and potentially increase beginning in 2015.

The bounce-back won't happen right away, but it should be enough to partially ease the downward pressure from pure demographics, she says.

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Here's Why Wall Street Loves The Return Of P&G's Old CEO (PG)

Last night, P&G unexpectedly announced that current CEO Bob McDonald was retiring, and that his predecessor, A.G. Lafley, would replace him. P&G shares rose 4% today on the news. 

Though the company's CFO said the decision was just about Robert McDonald deciding to retire (at 59) and that there won't be any dramatic strategic shifts, there's a reason activist investor Bill Ackman pushed for a change. 

Ackman argued at a presentation at the Ira Sohn Conference, that the company was "vastly under-earning" due to an inability to win in emerging markets, a poor organizational structure, marketing problems, and bloated overhead. 

Lafley, an in-house legend who increased company value by $100 billion during his past tenure, has his work cut out for him.

We spoke to Lafley a few months ago after the release of his book, "Playing To Win," about why some executives and companies fail at strategy. 

He argues that business fail when they don't make difficult choices about where and how they can win particular markets and put the full weight of the business behind them.

P&G's current restructuring and cost cutting program is not going quick enough for investors. During his time at P&G, Lafley cut more jobs than any previous CEO, sold off the company's hugely valuable food brands, and carried out a $57 billion acquisition of Gillette. With Lafley, strategy isn't about small choices. 

Here are some of his key insights:

On when things go wrong

"When we made mistakes, when we had our failures, when we weren't delivering results that we were capable, almost there was almost always one of two problems. Either we had lost our connection with our consumer and what they wanted, needed, and valued, or our strategy needed to be changed because something had changed in the marketplace and we hadn't responded." 

Companies go halfway and don't fully develop a strategy

"This is probably most common at Fortune 500 companies. They do part of the strategy job, but they don't do the whole thing. What do I mean by that? They have a vision or a mission, they might go out and do industry, company and competitor analysis, they might even put together an annual plan and budget. Those are parts of strategy, or they're the output of strategy but they're not strategy."

So what's the solution? According to Lafley, it's about making difficult and specific choices, and putting the entire weight of a business behind them.

"Strategy is five choices," Lafley said. "What is winning; where am I going to play to win; how am I going to win where I play; where are my core competencies that are going to enable me to win where I play; and what management systems and measures are going to help me execute my strategies?"

Making tough decisions is essential

"A lot of human beings, don't like to make choices. Choices are difficult, we want to keep our options open, choices involve taking risks, and not only risk to the business but personal risk. So I think there's this sort of human resistance to making choices, and choices are the core of strategy."

People don't like thinking strategy, and focus on execution

"The second thing that goes on is I think that some people, maybe too many people ust don't like thinking strategy. They think that they know what their product and service is, they think that it's all about execution. 'If I execute better than the next guy, I'm going to win.' But the problem is that execution without the direction of a strategy is all over the place. You might win occasionally but you're probably not going to win consistently, reliably or sustainably."

When you need to, cut even successful brands

"One of the toughest choices we had to make was to abandon and eventually divest all of our food and beverage businesses, Lafley said. "We divested 7 or 8 billion dollars worth of leading food and beverage brands, the Folgers coffee brand, number one in America and Canada, the Pringles chips brand number 2 to Frito-Lay, the Jif peanut butter brand, the Crisco brand, number one."

They did it because though they were profitable businesses, they weren't ones Lafley saw as winners in the long term, or where the business could continue to grow and win.  

"We chose for good strategic reasons to abandon and get out of those businesses so we could invest our resources," Lafley said, "primarily our people but also our cash, in businesses like home care, personal care, beauty care and health care, all of which looked strategically more attractive." 

All of the above questions played a role in the decision to divest; these were areas in which P&G could win, Lafley said. "They were demographically more attractive, they were structurally more attractive, lower capital, higher margin, and frankly they were better fit with our core competencies, deep understanding of consumers, the creation of known brands, and innovation."

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CHART: The Only Difference Between The US And Europe That Matters

Sam Ro | May 24, 2013, 11:11 AM | 4,406 |

Many Americans continue to struggle, even four years after the height of the financial crisis.

However, America's leaders should be praised for at least doing a better job than their counterparts in Europe.

Take the unemployment rate.

"The labour market is an example of the divergent performance between the two regions," wrote Deutsche Bank's economists in their new House View report. "Unemployment stood at roughly the same level in mid-2009. Since then, US unemployment has edged down to 7.5% while Eurozone unemployment has risen to record highs of 12.1%"

So, as bad as things are in the U.S., they could be a lot worse.

Deutsche Bank

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UK Prime Minister David Cameron Has Gotten Himself Into A Horrible Mess

AP

In January of this year, David Cameron had a problem. Over the past few years his party had grown divided over the U.K.'s membership in the European Union.

What's more, they were slowly being squeezed by an upstart party, Nigel Farage's UKIP — an anti-immigration, anti-Europe party that had slowly but surely been gaining in opinion polls, while Cameron's Conservative Party slowly but surely made losses.

So Cameron had a plan. In a widely anticipated speech, the British prime minister announced that a referendum on Europe membership would take place between 2015 and the end of 2017.

At first it seemed like a brilliant tactic, placating the eurosceptics in UKIP and his own party by agreeing to put the vote in the public's hands. The timing was key too. By setting the date a few years in the future, after the UK's next general election, he could concentrate on what really mattered — actually winning the election (the Conservatives, part of a coalition government, have trailed the opposition party Labour in all recent opinion polls).

Now, four months later, one thing is clear. The plan was an potentially devastating failure.

Here's why.

"All he's trying to do is to kick the can down the road and to try and get UKIP off his back," Nigel Farage said after the referendum was announced.

Farage's viewpoint seems popular. According to one recent YouGov poll, just 17% think he feels strongly about the issue, while 64% think it was a "tactical calculation." 55% believe Farage feels strongly about Europe, for contrast, with just 22% thinking its a calculation.

What's more, by accepting that Europe is an issue, Cameron seems to be accepting UKIP's grievance, perhaps further legitimizing the party. Earlier this month, UKIP had a huge night in local elections, gaining a large number of council seats while the Conservatives lost seats.

The rebels in the Conservative party don't appear to have been placated either. The Financial Times notes that the 40 or so "unbiddable" rebels in the party have been joined by the most rebellious backbench of any party since the second world war.

These rebels have continued to cause problems on Europe since January. Most recently, 114 Tory rebels backed a bill that slammed the lack of an in-out EU referendum Bill in the Queen’s Speech (which sets out a legislative agenda for each new parliament), forcing Cameron to put out a draft bill reassuring the rebels of his intentions.

The prime minister has also been forced to put a three-line whip (the most serious) on the government's referendum bill, which will take place next month.

The situation has soured to the point where an unnamed source, close to Cameron, was quoted as calling the Tory activists "swivel-eyed loons." Perhaps not coincidentally, UKIP scored its highest result ever in one controversial poll after the comments went out — coming just 2 points within the Conservatives.

There's one strange facet of this whole situation. Despite the fact that the issue of Europe has engulfed the Conservative Party, the average voter doesn't necessarily care too much about it.

The most recent YouGov poll found that 72% of voters think that the economy is amongst the top three most important issues for the UK. 56% voted for immigration and 31% voted for health care.

While the polls do show that Europe has become a much larger issue for voters in the past few years, there is a serious danger that the Conservatives are obsessing over Europe at a time when most voters are more worried about other things — unemployment, living standards, etc.

Perhaps the rift within the Conservative Party perhaps isn't even about Europe. The UK Polling Report has written that "UKIP support is not particularly connected with Europe, it is an anti-immigration vote and protest vote against some aspects of modern Britain, a general reactionary vote in support of taking Britain back to a status quo ante."

This is probably why the "swivel-eyed loons" comment was so controversial and why the Europe rebellion has coincided with a backlash against Cameron's gay marriage plans. The Eton-educated Conservative elite that Cameron is both a part of and surrounds himself with may be comfortable with modern England, but the Conservative's middle class base — the stereotypical "little Englanders" who have little in common with Cameron's global mindset.

If 46 Conservative MPs request a leadership contest, one must be held, and Paddy Power gives odds of 9/2 that Cameron will face a challenge and lose.

The Financial Times lists a few possible rivals, but there's a problem with them all — can they actually win the 2015 election?

Cameron's personal popularity remains relatively high in polls when contrasted to Labour leader Ed Miliband and Liberal Democrat's Nick Clegg. Given that neither Labour or the Lib Dems will commit to a 2015 EU referendum, the Tory rebels may decide Cameron is their best bet.

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PIMCO Does Active ETFs Right

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Republicans Are Suffering From The Sequester Far More Than Democrats

AP

The automatic, across-the-board spending cuts that began on March 1 are hurting more than ever, according to a new Washington Post/ABC News poll.

The poll finds that nearly four in 10 Americans say the cuts of the sequester have had a negative effect on them personally, which is up substantially from just 25 percent two months ago. 

Among that group, self-identified Republicans say they have been most affected. An astounding 46 percent of Republicans have felt the effects of the sequester, compared with just 32 percent of Democrats. Perhaps unsurprisingly, just 39 percent of Republicans support the cuts, compared with 54 percent who oppose them.

That's a significant change from a March WaPo/ABC poll, which found that only 27 percent of Republicans said they had been affected by the cuts. Among Republicans, the number of respondents who "strongly disapprove" of the cuts has climbed 8 percentage points in the past two months.

Here's a look at the Republican difference in chart form:

Brett LoGiurato/Business Insider (Data: ABC/Washington Post)

Overall, only 35 percent of Americans approve of the cuts, compared with 56 percent who disapprove, making disapproval of the cuts an issue that goes across party lines.

Congress hasn't felt any push to resolve the cuts since late April, when it quickly resolved a series of flight delays that were piling up across U.S. airports because of the cuts. But if personal displeasure with the cuts continues to fester, it could once again force Congress to explore alternative solutions.

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