Wall Street Breakfast: Missing Workers

Missing workers - When today's big jobs report arrives the labor force participation rate will be getting just as much attention as the headline number. Economists are looking for gain of 550K nonfarm payrolls for November, right near what ADP reported for private sector jobs. That would be more evidence of the substantial progress on the labor front that the Fed is aiming for, but not the breakout month of workers returning."For November, our model points to a mere 300K increase in private payrolls, but it has undershot in recent months so we look for a 500K increase, down from our previous estimate, 800K," Ian Shepherdson of Pantheon Economics says. "We'd love to be wrong about this, but the long-awaited surge to 1M-plus appears to have been delayed, again, suggesting that labor participation remains stuck in a rut.""Chair Powell ... expressed surprise at the continued flat trend in participation, which remains the biggest single risk to the benign medium-term inflation story," he adds. "If participation fails to rise, the huge labor demand/supply imbalance will persist, and the Fed likely will have to hike three or four times next year."The labor force participation rate is at 61.6%, steady for the last two months, and has not really budged this year. There are 3.1M fewer workers than before the pandemic and Wells Fargo estimates another 1M would have joined the workforce had the pandemic not happened. The distribution of missing workers is uneven, though.Not coming back: Labor participation for those 65+ is down sharply and has shown almost no improvement through the pandemic and recovery. "The drop in the participation rate of seniors comes as the ranks of this age group has swelled, with more than half of baby boomers having already reached the age of 65," Wells Fargo economists Sarah House and Karl Vessely write in a note. "When compared against the prior trend and accounting for the growing size of this cohort, workers ages 65 and over account for nearly another quarter of missing workers, far more than their share of the pre-COVID labor force."Many have retired and that becomes a huge hurdle for the labor market as only a small share of retirees move back in the labor force and retirees are 1/5 as likely to return to work than those not wanting a job for other reasons, they say. "COVID's grim reminder of mortality could also persist beyond pandemic, prolonging the trend toward earlier retirement," they add. "Stronger financial positions - wealth among households ages 55-69 is up 18% since the end of 2019 - also point to the pattern of earlier-than-otherwise retirements persisting for at least a while yet."Looking for the tipping point: Women aged 25-54 are the biggest pool of missing workers and childcare is the chief reason. At the same time, daycare center employment is down 10% from before the pandemic and recovery will be tough as labor is by far the industry's biggest cost, making it harder to boost wages while competing sectors do, Wells Fargo notes.Current "inflation pressures stemming from higher labor compensation are likely to pull more workers back into the labor force, as the trade-off between work-leisure tilts back toward paid employment," House and Vessely say. "This tipping point is likely to be closest for young workers. In contrast to prior downturns, young workers have not fled the labor force in favor of additional education; overall college enrollment for Fall 2021 was down for a second straight year." (2 comments)

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Top News Missing workers Shutterstock When today's big jobs report arrives the labor force participation rate will be getting just as much attention as the headline number. Economists are looking for gain of 550K nonfarm payrolls for November, right near what ADP reported for private sector jobs. That would be more evidence of the substantial progress on the labor front that the Fed is aiming for, but not the breakout month of workers returning. "For November, our model points to a mere 300K increase in private payrolls, but it has undershot in recent months so we look for a 500K increase, down from our previous estimate, 800K," Ian Shepherdson of Pantheon Economics says. "We'd love to be wrong about this, but the long-awaited surge to 1M-plus appears to have been delayed, again, suggesting that labor participation remains stuck in a rut." "Chair Powell ... expressed surprise at the continued flat trend in participation, which remains the biggest single risk to the benign medium-term inflation story," he adds. "If participation fails to rise, the huge labor demand/supply imbalance will persist, and the Fed likely will have to hike three or four times next year." The labor force participation rate is at 61.6%, steady for the last two months, and has not really budged this year. There are 3.1M fewer workers than before the pandemic and Wells Fargo estimates another 1M would have joined the workforce had the pandemic not happened. The distribution of missing workers is uneven, though. Not coming back: Labor participation for those 65+ is down sharply and has shown almost no improvement through the pandemic and recovery. "The drop in the participation rate of seniors comes as the ranks of this age group has swelled, with more than half of baby boomers having already reached the age of 65," Wells Fargo economists Sarah House and Karl Vessely write in a note. "When compared against the prior trend and accounting for the growing size of this cohort, workers ages 65 and over account for nearly another quarter of missing workers, far more than their share of the pre-COVID labor force." Many have retired and that becomes a huge hurdle for the labor market as only a small share of retirees move back in the labor force and retirees are 1/5 as likely to return to work than those not wanting a job for other reasons, they say. "COVID's grim reminder of mortality could also persist beyond pandemic, prolonging the trend toward earlier retirement," they add. "Stronger financial positions - wealth among households ages 55-69 is up 18% since the end of 2019 - also point to the pattern of earlier-than-otherwise retirements persisting for at least a while yet." Looking for the tipping point: Women aged 25-54 are the biggest pool of missing workers and childcare is the chief reason. At the same time, daycare center employment is down 10% from before the pandemic and recovery will be tough as labor is by far the industry's biggest cost, making it harder to boost wages while competing sectors do, Wells Fargo notes. Current "inflation pressures stemming from higher labor compensation are likely to pull more workers back into the labor force, as the trade-off between work-leisure tilts back toward paid employment," House and Vessely say. "This tipping point is likely to be closest for young workers. In contrast to prior downturns, young workers have not fled the labor force in favor of additional education; overall college enrollment for Fall 2021 was down for a second straight year." (2 comments)       Economy Shutdown sidestepped The U.S. Congress passes a bill to keep the government funded until Feb. 18. The Senate votes 69 to 28 to keep funding, following a 221-212 vote in the House of Representatives. Some GOP Senators were looking to hold up the legislation to block federal COVID-19 vaccine mandates. A deal was struck for a vote on a separate mandate-defunding measure, which eventually failed to pass. (4 comments)       Commodities Gold tumbles Gold prices slipped to their lowest settlement since mid-October, as the initial safe-haven demand for the metal caused by worries over the new COVID-19 Omicron variant proves short-lived. "Omicron fears have somewhat subsided late this week and that's putting some risk appetite back into the marketplace," according to Kitco's Jim Wyckoff. Also, Fed Chair Jerome Powell's hawkish pivot yesterday has prompted talk of rate hikes coming sooner than expected, also weighing on the non-interest-bearing metal. (38 comments)       Sponsored By CME Group Monetary Seesaw – The Treasury and Fed at Opposite Ends Over the coming months the Federal Reserve Bank will increase the supply of coupons in the market as it tapers its purchases of treasury and mortgage-backed security (MBS) assets. Meanwhile, the U.S. Treasury will decrease the amount of coupon issuance. These seesaw dynamics could make interest rate markets move in unique ways. Learn more here. Trending DIDI listing done Ride-hailing firm DiDi Global (NYSE:DIDI) said it plans to delist its shares from the New York Stock Exchange.

The company's board has also authorized DiDi to pursue a listing of its Class A ordinary shares on the Main Board of the Hong Kong Stock Exchange. DiDi, known as the "Uber of China," will organize a shareholders meeting to vote on the delisting at an "appropriate" time in the future, according to a statement. (150 comments)

     

Tech

NVIDIA'S ARM lock

The U.S. Federal Trade Commission is suing to block NVIDIA's (NASDAQ:NVDA) planned $40B purchase of ARM Holdings (ARMHF). ADRs of Softbank, which owns ARM, fell 3.8%.

"The FTC is suing to block the largest semiconductor chip merger in history to prevent a chip conglomerate from stifling the innovation pipeline for next-generation technologies," said FTC Bureau of Competition Director Holly Vedova in a statement. "Tomorrow's technologies depend on preserving today's competitive, cutting-edge chip markets. This proposed deal would distort Arm's incentives in chip markets and allow the combined firm to unfairly undermine Nvidia's rivals." (111 comments)

     

Today's Markets

In Asia, Japan +1.00%. Hong Kong -0.09%. China +0.94%. India -1.31%.
In Europe, at midday, London -0.16%. Paris -0.13%. Frankfurt -0.18%.
Futures at 6:20, Dow -0.01%. S&P -0.09%. Nasdaq -0.19%. Crude +2.4% at $68.14. Gold +0.5% at $1772. Bitcoin +0.34% at $56958.
Ten-year Treasury Yield -1.5 bps to 1.434%

Today's Economic Calendar

8:30 Non-farm payrolls
9:45 PMI Composite Final
10:00 Factory Orders
10:00 ISM Service Index
1:00 PM Baker-Hughes Rig Count

Companies reporting earnings today »

What else is happening...

Virgin Galactic (NYSE:SPCE) invites more customers to join priority list for space flight.

Prior infection may not protect against Omicron COVID variant: S. Africa microbiologist.

Travel stocks rebound as analysts tell investors to 'buy the dip'.

'The Harder They Fall,' 'Seinfeld' pace Netflix (NASDAQ:NFLX) to streaming wins.

Goldman sees oil (CL1:COM) upside next year in ongoing structural bull market.

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