Common Cents & Trench Warfare

This morning, the Bureau of Labor Statistics (BLS) released the “The Employment Situation – October 2021,” which showed the US economy created 531K net, new payroll jobs. This was significantly higher than last month’s initial reading of 194K and substantially more than Wall Street’s prediction of 450K. Not surprisingly, the official Unemployment Rate fell from 4.8% in September to 4.6%. Make no mistake about it, the headlines for this report were/are solid.

However, one thing, at first blush, remains somewhat head-scratching: the ‘labor force participation rate.’ It remained stuck at 61.6% despite many people, including yours truly, thinking this would increase after the Federal unemployment benefits ended last month. After all, we have all heard about the massive number of available jobs and how employers can’t find anyone to take them, right?

So, what gives? This is where you have to do a little data mining.

After going to the St. Louis Fed’s spectacular database(s), it is pretty clear what has happened and what is happening. Our older workers aren’t going back to work. Period. There, I have said it, and I have the data points to prove it.

In February 2020, the month before things started getting really ugly in the economy, the ‘labor force participation rate’ among workers 55+ years was 40.4%. Two months later, in April, when the labor markets bottomed out, the participation rate for this group was 38.7%. This past month, it was, get this, 38.5%. For those workers 65+ of age, the respective numbers are: 26.0%, 23.5%, and 23.4%. Essentially, when these folks left the workforce, they left the workforce.

Conversely, the participation rate for workers 20-54 years old was 81.5% in February 2020. It hit a low of 77.6% in April, and has bounced back to 80.4% as of last month. While it hasn’t quite gotten back to where it was pre-pandemic, there has been marked improvement since the dark days of last Spring. Further, there was a 0.3% increase in this age group in October, the month after those additional benefits ended. Weird that.

But what of that older age group. Why have they opted out in such large numbers? And, are they ever coming back?

First things first, I suppose a lot of people in this group have stayed out of the workforce because they can, financially. After all, the S&P 500 is up a massive 50.31% since the end of 2019, as I type here today on 11/5/2021 at 9:37 am CDT. Further, home prices have also soared, giving people a healthier looking balance sheet. To that end, the ‘S&P CoreLogic Case-Shiller 20-City Composite City Home Price SA Index,’ it is a thing, was up 24.64% from 12/31/2019 through August of 2021, which was the last observation.

So, let’s do some math.

Meet Fred & Nancy, both aged 65. They have both had nice careers, which will enable them to max out on their Social Security benefits. As such, both could be entitled to about $44,000/year. Obviously, combined, this works out to be $88,000. Further, at the end of 2019, they had each been able to amass $500K in their 401K plans at their employers, and their house had an estimated market value of $500K, with a $250K mortgage on it.

Doing some back of the envelope math, using the returns in the paragraph above, their net equity on their collective balance sheet has grown comfortably in excess of $600K in a relatively short period of time. Further, if they each take 3% out of their 401K per year to help fund their lifestyle, their annual income could be around $133K. While that income stream won’t get you into Pine Valley, it would, could, or should be able to provide a comfortable retirement for most people, without being foolish.

I would submit THAT is the reason why so many older people have decided to drop out of the workforce: the explosion in asset prices due to the massive amount of liquidity the Federal Reserve and the Congress have thrown at the financial system and economy. Unless something scary happens to the stock and real estate markets, I suspect “we” would be hard pressed to get them to come back to the office.

However, it seems like we can’t find people to work at places like restaurants, worksites, shops, and that sort of thing, right? And old folks don’t usually work at those places, do they Norris? Without a doubt, you got me there.

This is where we have to put on our thinking caps, and get a little creative.

Imagine a World War I battlefield. If you have only the slightest knowledge of the Great War, you probably know the Western Front was bogged down in so-called “trench warfare.” Troops would go “over the top,” meaning they would climb out of their trenches in order to attack the enemy on the other side of “no man’s land,” who were also in trenches. Machine gun fire and widespread slaughter ordinarily ensued. After the bullets stopped flying, officers would simply move new soldiers from the back into the forward trench, and the process would start anew.

This went on for years, resulting in the pointless deaths of millions of people, until something happened. The Central Powers couldn’t replace all of their losses at the same levels. For instance, if they needed 10, only 8 might be available. That sort of thing.

The same thing is happening here. As older, and presumably more experienced, workers have left the workforce, people “below” them have advanced into their positions. This has created something of a domino effect, if you will, which isn’t a bad thing, at all. However, the number of new entrants into the workforce simply isn’t enough to replace those who have left it, kind of like trench warfare over a century ago. The needs are still there, but the necessary bodies aren’t.

But what can we do to get folks ‘back to work’ at those lower skilled jobs, which seem to be so prevalent? Unfortunately, there isn’t a good short-term answer; however, I know the eventual outcome: many of these jobs will simply disappear as businesses adapt to changes in technology and society. Obviously, this could lead to an increased number of disenfranchised workers who don’t have the skills to compete effectively in the 21st Century economy.

What to do…what to do…what to do? Whew…we could fill a bushel basket with everything we need to do. However, a logical first step, and the most important, is to take education in the United States far more seriously than we currently do. Further, we MUST get serious about vocational and technical training, as skilled craftsmen are hard to find. Shoot, even semi-skilled craftsmen are hard to find.

In the end, this morning’s report was a good one. However, there were some dark clouds in the silver linings if you really looked hard enough. Chief among these is a skills gap in the future which we need to start addressing now.


Take care, thank you for your continued support, and please be sure to listen to our Trading Perspectives podcast.

John Norris
Chief Economist






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