Physicians' Guide to Wealth

A guide for anyone pursuing financial independence

Q
Jobs, Jobs, and More Jobs

Aug 10, 2022

I can’t remember any time in my lifetime the extreme abundance of jobs. Almost everywhere I go, there are “Help Wanted” signs in business windows, billboards advertising signing bonuses, and even messages of “We’re Hiring!” on the sides of trucks.

Apparently, all the advertising is working. Last week, the Bureau of Labor Statistics (BLS) announced that non-farm payrolls increased by 528,000 jobs, and the two previous month’s reports were revised by another 28,000 jobs. This report came as a shock to investors as the increase was nearly 100% higher than expectations.

Below is a list of sectors that had the biggest job gains:
• Leisure and hospitality 96,000
• Professional and business services 89,000
• Food services and drinking places 74,000
• Health care services 70,000
 
Since the low employment participation reached April 2020, non-farm employment has increased by 22 million jobs and is now nearly fully recovered to pre-pandemic levels.
 
The strong rise in non-farm payroll reduced the unemployment rate to 3.5% in July, down from 3.6% the previous month. The number of unemployed persons (those collecting unemployment benefits) declined to 5.7 million people.

However, the US labor force participation rate that counts anyone 16 years or older is still well below pre-pandemic levels. As the US economy has been bouncing back from the massive 2020 whipsaw of companies closing and then re-opening, many people have not returned to “work.” They seem to have disappeared as they are not collecting unemployment benefits and not showing up on W-2 payroll reports.

In fact, this trend has been in place since the peak of the labor force participation rate reached in 2002.

As the above chart indicates, labor participation was on a sharp decline from 2002 to 2015, when it reversed to rise to its peak at the end of 2019. Although the post-pandemic recovery has been good, it has yet to return to the level reached by the end of 2019. The steady decline in labor participation since 2002 is primarily attributed to retiring baby boomers (born between 1946 to 1964). When the pandemic hit and employers closed their businesses, many who were close to retiring decided not to return and retired maybe a few years earlier than expected. Many cited their early retirement due to concerns about workplace safety or changes in policy that included social distancing (an oxymoron term), mask mandates, and working from home. I would suspect the preponderance of the many who had not planned to retire early and subsequently did are those in the Gen X demographic category (born between 1965 to 1980). Also, a growing percentage of families are returning to the pre-1970s era of a single household earner adjusting their budgets for a spouse to be dedicated to the needs of their kids and family.  
 
Younger generations who delayed returning to work due to generous government subsidies are slowly returning to work since September’s termination of the unemployment bonus. Based on the statistics reported above, the largest increase in payrolls was in the sectors that typically are entry-level or younger generation age groups. 
 
The pandemic had a significant impact on people’s lives and created the opportunity while confined to their homes to assess one’s lifestyle. Many have chosen to make changes they may not have done otherwise. Nonetheless, fewer people are working and choosing not to return to work. This may not be a negative for the US economy should the preponderance of these people have financial resources to support their lifestyle and especially the retiring baby boomers or Gen X. Most in these demographic groups are financially stable with the combination of income from social security, retirement accounts, investment accounts, and non-reported contract work. The baby boomer demographic group manages the largest percentage of the US wealth and can continue to spend. In late 2020, CNBC reported that baby boomers control over 53% of the country’s wealth and Gen X control over 25%. Meanwhile, the largest employed demographic group is the millennials (born between 1982 to 2000), who control just 4.6%. An interesting side note, when Baby Boomers were around the same age as millennials, they controlled 21% of the nation’s wealth. Millennials have some work to do to catch up.

What Does This Mean to Me?

Although the US is officially in a recession with this year’s two consecutive GDP quarterly declines, this is a trailing indicator. The jobs market and prospects of consumer spending are a better barometer of future economic cycles. A strong job market is particularly important this year as retailers prepare for the holiday season. Consumer spending represents 66% of the nation’s financial activity and is the biggest factor for solid year-end holiday sales. National Retail Federation (NRF) reported that 2021 holiday sales during November and December increased to $886.7 Billion or 14% above 2020 sales. Rising employment and high job participation is good news for retailers and for the economy to end on a positive note.
 
Indications are that Q3 2022 will experience positive GDP growth and officially end the recession status. If the Federal Reserve reports in upcoming meetings more comfort with inflation and an indication of relaxing their rate hike policy, institutional investors may continue to add stocks to their portfolio, taking advantage of current buying opportunities.
 
The S&P 500 has technically cleared our announced June 17 bottom and is now above both its 20-Day Moving Average (DMA) and 50 DMA. Also important is the 20 DMA is above the 50 DMA, which means the S&P 500 index up trend for the past 20 days has been faster than the previous 50 days. Indicating not only a positive trend but also picking up its pace.
Since June 17, the major indices have all been positive, with NASDAQ predictably leading the averages since it declined the most during the correction. Below are the performances of the indices since June 17:
 
• NASDAQ 15.29%
• S&P500 12.01%
• Dow Jones Industrial Average 11.44%
• S&P400 (Mid Cap) 12.24%
• S&P 600 (Small Cap) 12.12%
We maintain our favorable view of the US economy and stock market. As readers know, we had held steady with our favorable rating all year when the main media were relentless messaging a doom and gloom storyline and now reversing their positions. Yes, the US economy slowed down in Q1 & 2, but how could it not with the Federal Reserve aggressively raising the discount rate?
 
As mentioned in previous Briefs, the Federal Reserve lowers interest rates if they fear a recession. Their analysis apparently accurately concluded the economy had the financial momentum to absorb an increasing rate policy to slow an unsustainable inflationary trend. Had the Federal Reserve not implemented its rate policy, imagine the price of residential housing, energy, gas, and food. The latter is still rising based on recent trips to the grocery store. However, our opinion is the Federal Reserve acted correctly and timely based on lessons learned from the 1970s. Early in the year, you may recall main media feared the Federal Reserve would raise rates too fast and drive the US economy into an irreversible economic declining spiral that evidently prompted institutional investors to reduce stock allocations. The jury is still out on how the Federal Reserve will act and if they will implement a “soft landing” approach to relaxing their rate-raising policy.
 
We believe the market is in a positive uptrend and to buy on dips. The first half of 2022 has been an excellent buying opportunity for 401k participants with regular payroll contributions. The second half of 2022 may provide excellent returns for investors that start adding to their stock allocations should the market recover from the first half-year declines.
 
Call us if you have any questions about this Brief or your account. More importantly, we specialize in assisting in developing for you a well-defined financial plan with target goals which is a key to navigating through market volatility, especially in the previous couple of years.

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