A plausible cause of the 1955 labor force increase

From "The Battle against Recession", the 22 April 1958 statement by Fed chairman William McChesney Martin:

The growth of business capital spending beginning in early 1955 was at a rate that was unsustainable. An economy with a long-run upward growth trend of about 3 or 4 per cent per year cannot sustain for long an increase in business investment of about 10 per cent per year in real terms, such as we experienced in 1955-56.

If, as we noted the other day, changes in labor force size are "procyclical" and are "induced by changes in demand" then if a massive increase in investment occurs, maybe we should expect to see a massive increase in the labor force as well.

Again: If there is a massive increase in investment, maybe we should expect a massive increase in the demand for labor, in labor force size, and in employment.

Maybe we should:

Graph #1: Real GPDI (right scale, blue) and Total Employees
on Nonfarm Payrolls (left scale, red)  1950-1962

Compare the increase following the 1954 recession to the one following the 1958 recession.

For the blue line, the two "humps" are similar in size and shape. But the hump before 1958 is of longer duration than the one after.

The same is true for the two red humps: similar, but with longer duration before 1958.

The "after 1954" and "after 1958" humps are of comparable size.  By contrast, the red and blue humps after the 1961 recession are lower than those following the 1954 and 1958 recessions. The humps before the 1954 recession are higher, with low secondary humps.

What else?

• For the "after 1954" hump, the longer duration of investment is matched by a longer duration of employment. For "after 1958", shorter occurs with shorter.
  
  
• Beyond that, for the whole 1950-1962 period shown on the graph, employment seems to follow investment up and down with a small lag. The red and blue are quite obviously related.
  
  
• The lag suggests that investment leads, and employment follows.

The longer durations after the 1954 recession seem to indicate greater levels of both investment and employment in 1955 and 1956. Building on Chairman Martin's observation, then, the investment boom of 1955-56 was closely followed by an employment boom: Greater investment led to greater employment.

It works for me.

I like this explanation of the unusual 1955 increase in labor force size. I like it, but I don't trust it. I need to find more ways to look at the data, for one thing, to see if it continues to show what I think I see on the graph above. And I need to look at other datasets that show the employment level, to see if they agree with the data used here. I need to poke around in it for a while.

Where I say the longer durations indicate greater levels of investment and employment, that has to be checked, too. The graph shows growth rates, not "levels".

The main thing, for the way I work, is that I just have to sit on this and wait until it isn't "new" to me anymore. Then I can look at it and see more clearly. One advantage of being a hobbyist: I don't have to have it done by 4 PM.

But I do like it. If business was investing more than usual, then I would expect them to be hiring more than usual, and that may just explain the unusual labor force growth.

It's certainly a better theory than "everyone wanted a '55 Chevy."