Who is Singing Johnny Paycheck in December?

This morning, the Bureau of Labor Statistics (BLS) released “The Employment Situation – December 2023.” The headline number was pretty decent. Apparently, the economy created 216,000 net, new payroll jobs last month. Let’s just say, it is hard to say the economy is slipping into the abyss with that sort of job growth. To put that number into perspective, it is greater than the populations of Salt Lake City, Rochester NY, Des Moines, Tallahassee, Chattanooga or Birmingham.

While that is a decent amount of folks now collecting a paycheck, the rest of the report wasn’t quite as robust as the headline. Far from it.

As I have mentioned in this blog/newsletter in the past, the Employment Situation report has two components.

1. This first is the Establishment Data, which is a survey of actual employers and HR departments. How many people did you hire last month? That sort of thing.
2. The second is the Household Data, which is as the name implies. Representatives from the BLS call up individuals, or households, and ask them whether they are participating in the labor force and whether they have a job.

Ideally, the two would move in lockstep with one another, but they rarely do. However, they ordinarily aren’t as far apart as they were this past month.

You see, although the official Unemployment Rate remained essentially unchanged at 3.7%, it seems a lot of Americans decided to opt out of the workforce last month. As a result, the Labor Force Participation Rate (i.e., the percent of non-institutionalized Americans over 16-years of age looking for work) fell from 62.8% in November to 62.5% last month.

While that might not sound like that big of a deal in relative terms, this represents a whopping 676,000 people who are now sitting on the coach by their own admission. Well, maybe they are doing something other than watching the television. However, I think you get the picture.

So, if the Unemployment Rate remained the same while the number of people looking for work took a powder, it would seem a lot fewer people reported having a job in December. How does the number 683,000 strike you? Since the BLS reported the ‘civilian non-institutional population’ grew by 169,000 souls last month, the Household Data reported an additional, get this, 845,000 Americans were no longer participating in the labor markets.

To put THAT number into perspective, it is greater than the current estimated population of the City of San Francisco. Put yet another way, it is roughly the same as Columbia, South Carolina’s entire metropolitan area. If you don’t like that one, try on Worcester, Massachusetts for size, figuratively of course.

So, what happened? It seems a lot of, shall we say, more experienced workers opted out last month.

• The ‘US Labor Force Participation Rate 55 Yrs+ NSA’ fell from 38.8% in November to 38.4% in December.
• As for the bulk of the workforce, the 25-54 year old crowd, the rate fell from 83.3% to 83.2%. While that isn’t what you would like to see, it isn’t necessarily anything to keep you up at night.

You see, according to the St. Louis Federal Reserve, the ‘Civilian Labor Force – 55 Yrs. & Over’ fell to 38.499 million in December from 39.022 million the previous month. That is a difference of 523,000 people or potential workers. Obviously, that makes up the clear majority of the total saying “no mas” during the holidays, some 77.4%. This from a relatively small portion of the overall workforce, about 23.0%.

What? You mean older workers don’t want to work in warehouses, hospitals or restaurants/bars? So, it would seem.

Moving forward, this age demographic is going to be a relatively fickle group, and the Participation Rate should continue to trend downwards. The reason for the latter is simple.

The percent of workers 65+ years will continue to climb as the Boomers age and the much smaller Generation X enters the group. Intuitively, if that is the right word, people are more apt to retire when they hit 65, and older, than they are at 55.

So, as the number of potential American workers entering their 70s swells, the Labor Force Participation Rate for the ‘Civilian Labor Force – 55 Yrs. & Over’ will fall. Of course, this assumes people behave as they have in the past, even at least somewhat.

But why the collapse in December? After all, the absolute number of folks headed for the house was comfortably in excess of a half-million.

If I were to canvass every employer in the country, and got the truth, I imagine I would find a lot of companies made it “economically” advantageous for some of their older workers to call it a day. You can call it an “early retirement” or what have you. However, a lot of firms are very anxious to start pushing their younger folks up the proverbial ladder. Trust me, the young folks are pretty desirous, too.

So, what is a few extra months of pay to get Asa to retire in order to elevate Dylan? In the grand scheme of things, not much. While some of that undoubtedly happened, I strongly suspect last year’s surprisingly strong stock market had something to do with it as well.

In no uncertain terms, 2022’s disastrous returns were a cold glass of water to the face of folks on the verge of retiring. A lot of them had done their calculations to the penny. All they needed was a certain dollar amount to make it all work. And, hey, they used a very conservative return assumption, slightly less than the actual historical norm, to determine what the nest egg should be.

Unfortunately, the math doesn’t work when both stocks and bonds are down strong double-digits in any one calendar year like they were the year before last. That sort of thing really throws financial planning software for a loop.

As a result, there were surely hundreds of thousands of workers who put off retirement ‘one more year’ to try and make up what they ‘lost’ in 2022. Depending on how they invested their money this past year, fortunately, a lot of them were able to get back to where they had been in 2021, or at least close enough. You could almost hear the collective sigh of relief over the holidays.

You can think of it this way. Imagine your wife gives you $250 to go to the grocery store. Unfortunately for you, there is a casino on the way to the Kroger/Publix/Harris Teeter/Albertson’s, and you love to play blackjack. Where is the harm, huh? Play a few hands. Make a couple of bucks. Have a ‘free’ drink, and then do the shopping. Sounds good, right?

The only problem is you are quickly down $120, and mama is NOT going to be happy if you don’t have everything on her list. As such, you do what you have to do, and scratch your way back to being down only $20. I mean, a happy wife means a happy life, or something along those lines.

While the adrenaline is pumping the temptation is strong to stay at the table, time is wasting. So, you hotfoot it to the store. You load up the cart with store brands, and make it home with some change for the missus. All is well that ends well, even if you were sweating it for a while there.

Yep, that about sums up 2023 for a lot of older workers.

Moving forward, every year the market(s) crush it, you can expect the Labor Force Participation Rate to dip in December for the ‘Civilian Labor Force – 55 Yrs. & Over.’ That is why I called this group fickle. You know, perhaps I should have used the word pragmatic instead.

In the end, this morning’s Employment Situation report was a mixed bag. Sure, the headline number was a good one. However, there was enough weakness in the rest of the data to suggest the Fed is still on course for at least several rate cuts in 2024. As I have suggested here, the greatness weakness is with our older workers, as many of them sang an old Johnny Paycheck song in December.

Have a great weekend.

 

Thank you for your continued support. As always, I hope this newsletter finds you and your family well. May your blessings outweigh your sorrows on this any every day. Also, please be sure to tune into our podcast, Trading Perspectives, which is available on every platform.

John Norris

Chief Economist