Help Wanted for Christmas and Beyond!

The seasonal increase in job openings is typically a great time for students and entry-level workers to get jobs with short-term income opportunities. Unfortunately for most businesses, finding qualified employees has been a challenge since the economy came roaring back after recovering from the spread of the 2020 coronavirus. Since dropping to a nearly ten-year low of job openings in March 2020, employers renewed their hiring faster than people were willing to return to their former W-2 job positions. Very quickly, the gap of unfilled jobs increased by almost 300% from March 2020 to late 2021 as employers desperately sought out eligible candidates to hire. Labor costs soared in typical supply vs. demand imbalance as businesses competed for a shrinking employee labor market, with many fast-food companies paying $15/hour for anyone who could fog a mirror and show up to work somewhat regularly.

Below is the historical Job Openings and Labor Turnover Chart provided by the Bureau of Labor Statistics that illustrates how dramatically the job gap has widened since openings bottomed out in March 2020.

Over the past three years, we opined that people were not returning to W-2 employment due to the generous government subsidies that, for many households, provided higher after-tax income than going back to work. Millions of people developed home-based businesses, some out of necessity to simply pay bills during periods of government stay-at-home mandates. Many people continued with their at-home "gigs" as the pandemic-related restrictions were lifting, and the US economy was coming back to life. Many enjoyed the increased family time by working at home and especially did not miss the commute to their former W-2 jobs. Many earned double income from their self-employment while receiving government subsidies.

This explains the phenomenon of a 300% increase in job openings while the unemployment rate that tracks only W-2 income plummeted to lows not seen since 1945.

The results for many households were substantial increases in net income and savings that resulted in historic high levels of household saving rates and debt reduction. The Wall Street Journal reported today,

"Home values shot up, and with fewer opportunities to spend money during lockdowns, many people paid down debt and boosted savings. Between 2019 and 2021, the median household's net worth increased 30% to $166,900, according to a report out Monday from Pew Research Center."

The improving financial conditions of households, along with historic low fixed-rate mortgages, set the stage for a short-lived residential home market boom as people moved from high-density areas to suburbs.

However, since the 2021 peak of job openings, people have started to return to the W-2 job market, possibly due to the combination of expiring government subsidies and less-than-favorable results as entrepreneurs. The decline in job openings reduced the pressure for employers to compete with higher wages, which eased the labor inflation rate. This was good news for the Federal Reserve, which has been uber-focused on inflation, prompting 13 consecutive rate increases.

WHAT DOES IT MEAN TO ME?

US consumers and households are still possibly in the best financial conditions of all developing countries. Holiday retail sales are directly impacted by consumer financial health and sentiment. So far, it appears the doom and gloom have overstated the pending risks of a recession and understated the financial well-being of the US economy. The Federal Reserve started raising the discount rate in March of 2022 to successfully thwart the beginning of a hyperinflationary cycle. The risk of an aggressive rate hike campaign was reversing the recovery of the US economy from the pandemic and driving it into a recession. The Federal Reserve projected that the financial strength of businesses and consumers could absorb higher lending costs with minimal impact on growth. Few agreed with this assessment in 2022, which has now proven to be accurate.

Institutional investors agree with this assessment, renewing their stock buying since October 27, when the S&P 500 bottomed from the selloff that started July 31. More importantly, the S&P 500 is solidly above its 20, 50, and 200 Day Moving Averages (DMA) and nearing new-year highs.

The recovery from October 27 is a wide breadth rally with gains also in NASDAQ, S&P 400 (mid-cap), and S&P 600 (small cap). As illustrated below, all indices are nearing new-year highs.

We maintain our favorable view of the US economy and stock market. We anticipate the stock market to continue its positive trend into the year's end and through 2024. We will report on the Santa Claus rally, which is the trifecta results of the S&P 500 end each of the following periods:

• The week between Christmas and New Years

• The first week of January

• The month of January

We have written about this amazingly consistent predictor of the new year's stock market performance and will provide you an update in February.

In the meantime, let us know your thoughts on this Weekly Brief. Also, let us know how we can assist you and your family with your financial planning or investment management. We welcome the opportunity to work with you.