Wall Street Journal Article – https://www.wsj.com/economy/jobs/the-job-market-boom-is-over-heres-why-and-what-it-means-5f3e498f

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Ben Fraser: Welcome back to the Invest Like a Billionaire podcast. I am your host, Ben Fraser joined by fellow host, Bob Fraser. Today, we’ve got another top of mind episode for you. These are shorter episodes focused on a one two punch of what’s going on in the economy. Some kind of interesting headline that sparked our interest that we think is relevant for investors and navigating the ever changing economic landscape, but wanting to tie things.

back to the broader themes that we’re following. And so one of those themes, and this is something we talked about probably what, a year and a half, two years ago, coming out of the initial kind of COVID restrictions and we had this massive spike in unemployment and then, it dropped and now we’ve been at like record low unemployment again for really the past 12 to 18 months.

And it really was confusing because wait, where are all these workers go? All these people that needed jobs before going now post the pandemic. They’re out there. 

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So we did a whole analysis there. Basically a lot of elderly in the workforce, baby boomers that are close to retirement, decided just to leave early, right?

And they decided just to, Hey, I’ll take a little severance and. I got enough in my retirement and I’m going to call it quits and be done and they’re not coming back. And then there’s another kind of group or group that were dual income families. And because of the rise in wages that was happening they decided, hey, we can pull back to a single income while it stays home with the kids.

We don’t have to put them into daycare, which is very expensive. And it consolidated. So that was a trend that’s been going on for a while. We’ve seen wages really increase. We saw some massive increases in wages. And one, why is that important? Wages are very inflationary, right?

Because as we’ve said before, GDP and the GDP growth is driven predominantly by consumer spending. And so if consumers are making more money, they’re putting more in their pockets, they’re going to be spending more, which continues to put this pressure on inflation. And in the meantime, As companies are trying to expand, there’s a shortage of labor, and they’re trying to hire more people. They’re having a challenging time finding the right workers.

This article we saw in the Wall Street Journal posted in the links here, talking about the job market boom is over, and here’s what it means. And a little bit of a clickbait title, not really clickbait, it’s a good article, but… We agree with some of the points, but then we also wanted to push on some of the points because we think it might be a little bit too far to the one side of the spectrum on calling the job market crazy boom over.

Bob, share, share some of your thoughts and let’s walk through some of the points in this article. 

Bob Fraser: Yeah, and they’re making a point that the non farm payrolls or the growth of payrolls is really where it was pre pandemic and that’s accurate. And so what we’ve seen is people…

Massively coming into the job market, so it’s called the participation rate, it’s the percentage of the population or the percentage of people in certain age groups that are considered part of the workforce. And so retirees are not considered part of the workforce, teenagers, et cetera or people who voluntarily remove themselves from the workforce say, no, I’m not interested in having a job.

And so what’s happened is a lot of people have reentered the workforce and a lot of immigrants and a lot of women and a lot of disabled and others are coming into the workforce really probably pushed by the higher wages that they’re, that they’ve been seeing. And so what’s happened is they begin to fill some of these jobs and take some of the pressure off.

But what it’s missing is the bigger story that wage growth is still tracking above the 4 percent range. And so there’s a lot of imbalances in the market. So the Fed beige book was pointing out that while job growth was subdued or you’re normalized across the nation, imbalances are still persisting because there’s a shortage of skilled workers and the number of applicants, there’s just not enough applicants to fill a lot of these jobs.

And they’re also saying that the cost pressures, while they see wage growth slowing, it’s still going to continue to grow and inflation. So it’s not a, it’s not all, it’s not all hunky dory as everybody, everybody thinks. 

Ben Fraser: And for those who don’t know what the Beige Book is, can you just share what that is?

Bob Fraser: That’s the feds kind of assemblage of data that they look at with their analysis. So their economists put together these massive reports. It’s called the beige book that they look at and they review and that’s what they make. They’re calls on interest rates.

So yeah, so it’s not just, it’s not over. There’s still a lot of imbalances and there’s still a lot of wage pressure because of that. Yeah, 

Ben Fraser: absolutely. Great. There’s a great chart that they have that’s a dynamic chart on the article here. So definitely look at it if you have a minute.

And one of the charts here, graphs and charts, job openings relative to unemployment. And so we have seen job openings higher than that employment rate. Even before COVID, then we saw a massive spike in unemployment, there weren’t many jobs. And then we saw this massive resurgence of a lot of job openings, right?

Companies were hiring and there weren’t enough people to hire. And now we’ve seen the gap compress. There are fewer job openings relative to those that are looking for work, but it’s still a pretty elevated gap. There’s still a pretty large gap. And what I think is interesting, it would be, they had the chart to bifurcate between, skilled labor versus unskilled labor.

And you’re making the point that, while some of these jobs for like unskilled labor, I say like restaurants or if somebody is like harder to fill type roles and like nursing homes, hospitals, some of those kind of unskilled labor jobs, those are being filled and they’re being filled by some other parts of the workforce that maybe weren’t as high participation rate, but the skilled labor.

Those are still more difficult to find because a lot of the people that exited the workforce were the skilled labor and that’s the bigger gap that is going to be harder to solve. It’s not going to be simple, I put my application into McDonald’s and I don’t really need a whole very strong resume, right?

To go get a job there versus go be an IT engineer at X company or something. 

Bob Fraser: Yeah. So it’s still lots of imbalances and still lots of inflationary pressures in spite of the new people entering the workforce. And we still have the demographic pressure of the boomers retiring.

And as you said, there are the holders, a lot of skilled positions. So there’s a lot of aging out of a lot of industries, the highly skilled people are leaving the industries and there’s not really the replacements. 

Ben Fraser: It’s so interesting to compare and contrast what we shared about a few weeks ago with China facing deflation.

They actually have the inverse problem, right? They have much higher unemployment and they have more skilled workers than there are skilled jobs, right? Because they’re predominantly in manufacturing. Kind of a labor force, but as they’ve continued to become more of a developed country, they’re more educated, people are going to college, getting advanced degrees.

They’re not coming out. They don’t have jobs. So it’s this really unique dynamic that we have a very different problem that they have and it’s creating different dynamics. 

Bob Fraser: Yeah. They focused on sending all their young people to university. And those university graduates don’t want to work in manufacturing.

Of course they don’t. And so they have a very interesting problem. That they just, they don’t have this, they don’t have the skilled jobs. It’s strange. And we continue to see, there’s a huge problem. There’s a lot of headlines that show that the youth unemployment rate in China officially is running 25%.

And of course, as soon as people, the Western press pick somebody, the Chinese discontinue the data and they stop reporting on it because they don’t want any bad news. And then I’ve seen other reports that the unofficial unemployment rate of the younger set is actually closer to 50%.

And people who are simply, they’re saying the, they call them, I think the lay flats, right? They’re just, they’re saying, no, we’re opting out of the system. We don’t like the system and we’re just opting out. And for a lot of reasons, they don’t like it. A lot of things are happening there.

So China, China is in a world of horror in everything that’s happening over there right now. Their future is just nuked. I even saw the latest demographic trends there, if possible the birth rate is dropping. Per the, it was a reported 

Ben Fraser: It’s already one of the lowest birth rates.

Bob Fraser: Always one of the lowest and it’s dropping even more, 1.

15 children per woman and now it’s dropping to 1. 09, births per woman. So it’s just there’s really a hopelessness, in the younger people who just say, nah, I don’t want to have children. And in, and that’s on top of the fact that simply there aren’t enough young women because of the one child policy favored men.

And so they boarded more women, that there’s just, there’s simply no young women over there, very few. And so not enough to sustain a population. So China is just continuing to make whiff after whiff and goof after goof. The centrally planned economy is an oxymoron.

Ben Fraser: Yeah. So bringing it back here to the U S do you think, would you agree with the article that the job market boom and the labor shortage is over? No, 

Bob Fraser: I think it’s going to continue as, like I said, it’s probably people driving back into the workforce because of the higher wages and probably inflation, hey, get a job, but if as those things ease, there’s people are going to opt out again out of the workforce there.

There’s people who marginally want a job and marginally don’t. So I don’t think so. And you, and then you continue to see the older generations, the boomer generation retire. So I, I don’t think it’s, I don’t think we’re going to see any lasting changes here. I think we’re going to see continued job shortages and continued wage growth, both.

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