Volume 93 No. 9 - September 2022
By now, we have all seen “Help Wanted” postings and experienced the frustration of a shortage of workers. This is not a scene from the height of the pandemic. This could have happened last month, or last week—and anywhere in the country.
Why are businesses still struggling to hire workers? Where have the workers who once staffed these jobs gone? And what does all this mean for the supply chain woes still impacting our economy two-and-a-half years after the WHO declared COVID-19 a pandemic?
Finally, what do the worker and supply-chain shortages mean for the economy and your portfolio?
Where Did the Workers Go?
At the end of July, the US economy had over 11.2 million unfilled job openings, according to the U.S. Bureau of Labor Statistics.[1] However, there are only about 6 million unemployed people in the United States. That means that, even if we could assign an open position to each unemployed person, we would still have more than 5 million jobs unfilled. Why?
Part of the answer can be traced to the US labor force participation rate, a statistic that tracks the percentage of civilian Americans, 16 and over, who are working or looking for work. At one point during the pandemic, over 120,000 businesses had temporarily closed, and some 30 million workers were unemployed in the United States.[2]
Those numbers have since declined, but a new trend has emerged. Today, 62.4% of Americans participate in our nation’s economy, one percent less than in February 2020. In raw numbers, that equates to about 3 million fewer Americans participating in our labor force than we had two-and-a-half years ago.[3]
Some Workers Stopped Working
The underlying reasons for the worker shortage are more complex than simply a reduction in the labor participation rate. There are several reasons why workers just stopped working. One of the most prevalent reasons is early retirement. As of October 2021, over 3 million Americans had left the workforce for an early retirement, a figure well above pre-pandemic averages.
Falling ill with COVID also remains a drag on workers. In June, the U.S. Census Bureau found that roughly 16 million working-age Americans suffer from long COVID. Of those, long COVID keeps some 2 million to 4 million people from working, also contributing to the labor force shortage we see today.[4]
However, the reasons extend beyond long COVID. According to U.S. Chamber of Commerce research, concerns include the threat of contracting COVID-19 (29%), not enough “good” jobs available (26%), and the need to stay home to take care of children and others (24%). Other reasons such as substance abuse and fewer people turning of age to enter the workforce every year are also contributing to the systemic shortage of workers.
Some Workers Have Moved to Other Industries
Displacements of workers have been a challenge for employers looking to hire staff. The effects of the U.S. labor shortage have not been uniform across all industries. Wholesale and retail trade, durable goods manufacturing, and leisure and hospitality sectors have been the hardest hit by unfilled job openings.
Many of the workers who previously held those jobs have been rehired elsewhere. During what some have called the Great Resignation, many workers have migrated from their pre-pandemic roles that required on-site attendance or that paid lower wages to jobs that offered work-from-home options or higher pay, where possible.
The shift to remote work, brought on and accelerated by the pandemic, has shifted employee attitudes about the nature of work and how we accomplish our tasks. According to an August 2022 Gallup article, just 6% of remote-capable workers want to return to the office full-time. Employers are taking note. Today, about 20% of remote-capable workers work fully on-site compared to three times as many in 2019.
Employers who can’t, or won’t, accommodate their workers’ shifting preferences for work-from-home arrangements will likely see workers who disagree move on to new jobs, functions, and industries.
What Fewer Workers Mean to the Supply Chain, and Prices
Fewer workers mean difficulties in producing products and services. This has materialized in supply chain shortages, higher prices, and delayed delivery times. We pay overtime to the eligible workers that we do have. We pay hiring bonuses and higher wages to attract new workers. Those costs get passed on, and inflation takes hold in the form of higher prices.
The Fed has been monitoring increasing inflation rates, some reaching the highest we’ve seen in decades. In September, the Fed raised interest rates by 75 basis points for the third straight time and has indicated that more rate hikes will come as they attack inflation by reducing demand through increasing the cost of borrowing money.
What Does This All Mean?
We consider the dynamics of the current business cycle when establishing the sector weights that drive portfolio compositions and the positions taken across sectors. We constantly monitor the health of the economy and its sectors. Understanding the current dynamics of the economy influences our current view and outlook for the markets and the economy. Just as there have been displacements within the job market, there have also been displacements in the stock market. We monitor our approved stock list to evaluate potential opportunities in the market and in client portfolios.
As always, we are here to help you navigate this challenging environment, high inflation, and other macroeconomic factors such as labor and supply chain shortages. We have weathered many economic cycles and will be here again to apply our disciplined, long-term investment strategy to help navigate the current environment.
[1] https://www.bls.gov/news.release/jolts.nr0.htm [2] https://www.uschamber.com/workforce/understanding-americas-labor-shortage [3] https://www.bls.gov/news.release/pdf/empsit.pdf [4] https://www.brookings.edu/research/new-data-shows-long-covid-is-keeping-as-many-as-4-million-people-out-of-work/
Investment Counsel Inc., a Division of LaFleur & Godfrey, is a registered investment adviser. Information presented is for educational purposes only. It should not be considered specific investment advice, does not take into consideration your specific situation, and does not intend to make an offer or solicitation for the sale or purchase of any securities or investment strategies. Investments involve risk and are not guaranteed. Be sure to consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein.