Get 40% Off
🤯 This Tech Portfolio is up 29% YTD! Join Now to Get April’s Top PicksGet The Picks – Just 99 USD

Labor Hoarding Delays Recession Despite Negative EPS, High Unemployment Forecast

Published 10/02/2023, 14:54
Updated 09/07/2023, 11:31

Our base case remains negative EPS growth and a higher unemployment rate from May/June 2023.

In other words: a recession.

But what if we are wrong?

Labor Hoarding

During the pandemic, companies experienced serious staff shortages and faced major challenges when trying to hire newly qualified staff.

These memories might still be very fresh – look at this chart, for instance.

US Housing Index vs Unemployment Rate Chart

The rapid deterioration in the U.S. housing market (blue) would historically suggest big layoffs in the construction sector which would significantly move the needle for the unemployment rate (orange).

Some back-of-the-envelope calculations suggest such a frozen housing market should involve roughly 1.5 million job losses in all sectors related to real estate (construction, financials, brokers, and ancillary activities). These job cuts alone would put the U.S. in recessionary territory.

And instead, the construction sector has been net hiring (?!) over the last 12 months.

US Housing Activity

The only reasonable explanation here is labor hoarding.

As companies experienced serious difficulties in hiring qualified staff during the pandemic and perhaps expect this housing market freeze to be short-lived, they are not actively laying off people as they fear it might be hard to get them back.

Two confirming factors: wage growth isn’t accelerating and the average workweek hours keep declining. If companies want to hoard labor even if activity slows down, to save costs they will decrease their employees’ working hours and be more mindful about bumping up wages.

Labor hoarding seems real, and it might well delay the start of a recession.

Ultimately though, it’s a kick-the-can-down-the-road exercise.

***

Disclaimer: This article was originally published on The Macro Compass. Come join this vibrant community of macro investors, asset allocators and hedge funds - check out which subscription tier suits you the most using this link.

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.