Macro Roundup

J.P. Morgan estimates consumers still have $900B of excess savings, down from a peak of $2.1B in August 2021.

From March 2020 to August 2021, consumers amassed a peak $2.1 trillion in excess savings relative to the pre-pandemic trend. Since August 2021, consumers have drawn down on these excess savings. Household debt payments were 9.8% of disposable personal income in Q4 ’22 vs. a peak of 13.2% in Q4 of ’04.

JPM Staff, "Guide To The Markets," J.P. Morgan, January 2023, https://am.jpmorgan.com/us/en/asset-management/adv/insights/market-insights/guide-to-the-markets/

FRBSL estimates that the decline in asset values in 2022 drove 170,000 workers aged 51-65 back into the labor force. This represents 16% of the increase in LFP from Jan through Oct 2022.

“…The figure above plots the estimated average change in net worth per head of household age category during 2022. People between the ages of 55 and 74 lost, on average, over $100,000 in net worth due to falling asset returns between January and October 2022. This partly reverses some of the net worth gains in 2020-21, which were particularly high for these age groups. This is explained by the high exposure (in absolute terms) of people in these age groups to asset classes such as stocks and bonds, which performed reasonably well in 2020-21 but posted significant negative returns during 2022. Focusing on only people between the ages of 51 and 65, whose decision to participate in the labor force tends to be more sensitive to wealth effects, we find that the decline in asset values may have caused an extra 170,000 people to return to the labor force. This corresponds to an increase in the LFP rate of 0.06 percentage points, or about 16% of the total increase observed through October 2022….”

Miguel Faria e Castro and Sam Jordan-Wood, “Retirements, Net Worth, and the Fall and Rise of Labor Force Participation,” Federal Reserve Bank Of St. Louis, January 5, 2023, https://www.stlouisfed.org/on-the-economy/2023/jan/retirements-net-worth-labor-force-participation

Retirements, Net Worth, and the Fall and Rise of Labor Force Participation

The uncertainty surrounding financial markets during the COVID-19 pandemic contributed to many atypical trends. A 2021 Economic Synopses essay discussed the retirement boom spurred by COVID-19, which may have contributed to a persistent decline in labor force participation (LFP). Labor force participation is the percentage of the civilian noninstitutional population age 16 and older that is employed or actively looking for work. At the same time, returns on some common asset classes—housing and stocks—were abnormally high. This led to large estimated increases in household net worth during 2020-21.

Standard economic theory offers a natural link between the two trends of rising wealth and declining labor force participation. We call this link the wealth effect on labor supply: Holding everything else constant, an increase in wealth tends to reduce labor supply both at the intensive (how many hours should I work?) and extensive (should I work at all?) margins.

The increase in wealth during 2020 and 2021 plausibly contributed to the fall in labor force participation: As cited in a 2022 Economic Synopses essay, through September 2021, about 15% of the observed drop in LFP could be attributed to rising asset valuations; when we updated those calculations to include all of 2021, rising valuations accounted for about 20% of the drop. Even if changes in net worth were not the primary driver of retirements and labor force exits in the previous period, they certainly compounded them.

More recently, during 2022, we observed a reversal of these two trends: The recovery of labor force participation seemed to accelerate somewhat, as seen in the first figure below; this was especially true among older workers. Additionally, we observed a stabilization or even reversal of the large real gains posted by asset classes such as stocks and housing observed in 2020-21, as shown in the second figure. In this blog post, we update our previous analysis to account for the recent period of falling and negative financial returns across asset classes.

Updating the Data to 2022: Falling Financial Returns

In this post, we update key figures using two different time periods: 2020-21 and 2022. COVID-19 obviously did not end in 2022, but it was much less of an issue than it was in 2020 or 2021.

In 2022, the Federal Reserve started tightening monetary policy, which may have affected asset prices. Thus, standard economic theory suggests that we should have seen the opposite effects in 2022—falling asset prices and returns should have contributed to people returning to the labor force. There are, naturally, other reasons why the LFP rate should have recovered: The risk of contracting serious illness from COVID-19 was plausibly lower in 2022 than it was in 2020, and labor markets were extremely tight. Tight labor markets mean that employers have to compete for workers, with many doing so by raising worker compensation.

Stocks, housing and bonds constitute the three major asset classes held (directly or indirectly) by U.S. households. For the years 2020 and 2021, the first two asset classes posted high real returns, with the third posting modest but positive returns. These trends clearly inverted in 2022. The real return on stocks, as measured by the S&P 500 Index, was -25% for the year through October 2022, while the real return on housing was essentially zero for the same period. The real return on corporate bonds was -24%.

We use data from the 2019 Survey of Consumer Finances to estimate the impact of these real returns on the net worth of a representative sample of U.S. households. The figure below plots the estimated average change in net worth per head of household age category during 2022. People between the ages of 55 and 74 lost, on average, over $100,000 in net worth due to falling asset returns between January and October 2022. This partly reverses some of the net worth gains in 2020-21, which were particularly high for these age groups. This is explained by the high exposure (in absolute terms) of people in these age groups to asset classes such as stocks and bonds, which performed reasonably well in 2020-21 but posted significant negative returns during 2022.

Effects of Declining Net Worth on Labor Force Participation

As previously mentioned, the LFP rate recovered slightly during 2022: from 61.9% in December 2021 to 62.2% in October 2022. The large declines in net worth shown in the last figure could have influenced the decision to return to the labor force by many who left during 2020-21.

We apply the same methodology as in our previous work to try to determine how much of this 0.3 percentage point increase in the LFP rate can be attributed to falling asset values. Focusing on only people between the ages of 51 and 65, whose decision to participate in the labor force tends to be more sensitive to wealth effects, we find that the decline in asset values may have caused an extra 170,000 people to return to the labor force. This corresponds to an increase in the LFP rate of 0.06 percentage points, or about 16% of the total increase observed through October 2022. If, instead, we consider all people age 51 and older, we find that falling asset values may have contributed to about 380,000 people joining the labor force, which would account for 36% of the increase in the number of people in the labor force.

Again, it should be noted that falling asset values may be just one among several reasons why people are returning to the labor force. Lower risk of contracting severe illness, tight labor markets and potentially more attractive working arrangements (such as the flexibility to work from home) may be other primary reasons.

According to recent surveys, recently laid-off tech workers are quickly finding new employment with 40% accepting a new position within 30 days.

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“…About 79% of workers recently hired after a tech-company layoff or termination landed their new job within three months of starting their search, according to a ZipRecruiter survey of new hires. That was just below the 83% share of all laid-off workers who were re-employed in the same time frame. Nearly four in ten previously laid-off tech workers found jobs less than a month after they began searching, ZipRecruiter found in the survey…”

Sarah Chaney Cambon and Gwynn Guilford, “Laid Off Tech Workers Quickly Find New Jobs,” Wall Street Journal, December 27, 2022, https://www.wsj.com/articles/laid-off-tech-workers-quickly-find-new-jobs-11672097730

Laid Off Tech Workers Quickly Find New Jobs

Most laid off tech workers are finding jobs shortly after beginning their search, a new survey shows, as employers continue to scoop up workers in a tight labor market.

About 79% of workers recently hired after a tech-company layoff or termination landed their new job within three months of starting their search, according to a ZipRecruiter survey of new hires. That was just below the 83% share of all laid-off workers who were re-employed in the same time frame.

Nearly four in 10 previously laid off tech workers found jobs less than a month after they began searching, ZipRecruiter found in the survey.

“Despite the widespread layoffs, hiring freezes, and cost-cutting taking place in tech, many tech workers are finding reemployment remarkably quickly,” said Julia Pollak, chief economist at ZipRecruiter. “They’re still the most sought-after workers with the most in-demand skills.”

Job openings across the economy—at 10.3 million—are down from record highs but far exceed the number of unemployed Americans, providing opportunities for workers who lose their jobs and those who choose to seek another.

Workers previously employed in other industries, including entertainment and leisure, transportation and delivery, and manufacturing, also found new jobs quickly, the ZipRecruiter data showed.

The job market for tech workers is slowing as the broader economy falters under the pressure of Federal Reserve interest rate increases and high inflation. Layoffs and hiring freezes are occurring at startups and large tech companies such as Amazon.com Inc. and Facebook parent Meta Platforms Inc. that hired aggressively early on in the pandemic. The cuts are hitting workers in tech jobs—such as software engineers—and other corporate roles including recruiters.

Still, tech firms making cuts are outnumbered by those that are hiring.

A smaller share of tech workers is spending long periods searching for work after a layoff. About 5% of laid off tech workers who found jobs from April to October had spent more than six months hunting for work, down from 26% of those hired between August 2021 and February 2022, ZipRecruiter said.

Wen Huber, age 23, was laid off from a videographer job at a real estate tech startup in late July. Mr. Huber, who lives near Seattle, thought it would take awhile to land a new position, given he didn’t have a four-year-college degree and many other job seekers were flooding the tech job market.

“When I was applying, to be honest, I didn’t feel very confident because there was such an influx of competition with a lot of people also being laid off,” he said.

Mr. Huber had built up a savings buffer, allowing him to be more selective in his job hunt as he sought to pivot into social media. He documented his unemployment experience in a series of videos on LinkedIn. The videos helped him land an interview—and ultimately an offer—for a social media manager job at a software startup, Mr. Huber said. He started in September.

“I was surprised at how quickly I was able to secure an offer for a job,” he said.

Short job searches in tech have become slightly less common as the labor market slows from earlier in the year. Among people who recently lost a job and worked in tech previously, 37% found a new position within one month of starting to look, according to ZipRecruiter. That compared with 50% in February’s survey.

“We’ve definitely seen a slowdown in hiring, but the reason why is that the job creation level was beyond record highs because of the slingshot effect of the pandemic,” said Ryan Sutton, district president at Robert Half, a global recruitment firm. “From August 2020 to May 2022, it wasn’t red-hot. It was lava-hot.”

Usually when mass layoffs hit, there is an influx of tech candidates contacting his company to help with their job search, Mr. Sutton said.

“We have not seen it yet—we haven’t seen more candidates coming to market,” he said. “Our recruiters are having to hunt and hustle just as much as they had to in the last couple of years.”

Client firms in tech also haven’t mentioned any plans to cut jobs, Mr. Sutton said.

About 74% of workers recently hired after losing or leaving a job at a tech company remained in the industry, according to ZipRecruiter. Others who previously worked at tech companies switched to firms in industries such as retail, financial services and healthcare in the six months ending in mid-October.

Pinnacol Assurance, a 650-person workers’ compensation insurer, saw a 46% increase in job candidates from big tech companies including Meta, Microsoft and Twitter between September and mid-December, said Tim Johnson, the company’s chief human resources officer.

The influx of applicants has helped Pinnacol fill tech-related roles such as data scientist, machine-learning engineer and cloud architect in recent months. In mid-December, Pinnacol’s recruiting team made an offer to a job candidate from Google, Mr. Johnson said.

Ayanna Chapman, 42, started a systems-engineering job job at Pinnacol overseeing its computer systems in mid-November after she was laid off from another systems-engineer position this spring.

A generous severance package allowed her to take several months to freshen skills and study for certifications including in the Python programming language. When the Atlanta–area resident began looking for work in the second week of October, recruiters quickly reached out with interview opportunities, she said.

Ms. Chapman was keen on finding a job with stability and thought Pinnacol would fit. She received an offer from the Denver–based company about two weeks after beginning the interview process, much faster than previous experiences, she said.

“I literally cried tears of joy like, ‘Oh, my God, I got the job. I can’t believe it,’” Ms. Chapman said.

Employers broadly are responding to job candidates fast, likely for fear of losing them in a competitive market with a historically low jobless rate of 3.7%. Nine in 10 ZipRecruiter survey respondents said they heard back from a recruiter or hiring manager within a week of applying for a job.

ZipRecruiter’s most recent survey was drawn from 2,550 U.S. residents who had started a new job within the six months ending in mid-October. The data align with other job-market figures that signal the hot labor market is cooling.

Of the ZipRecruiter survey respondents who said they previously worked in tech, most of them likely worked for tech companies regardless of their occupation, Ms. Pollak said. In other words, a recruiter at Amazon would likely be classified as a tech-industry worker in the survey. But a data scientist at Home Depot would be a retail-industry worker.

Separate labor-market figures suggest employers across industries are still seeking to hire tech workers, though less so than earlier in the pandemic. Postings on job-site Indeed for tech occupations are still well above prepandemic levels, but have fallen steeply over the past year.

Software developer job ads on Indeed are down 34% from a year earlier, and ads for mathematics roles—which include data scientists—are 28% lower. Overall postings are down 7.7% from a year ago.

“With tech workers, it’s a much bigger pullback,” said Nick Bunker, an economist at Indeed Hiring Lab. “It’s still above prepandemic levels, but if the current trend keeps up, I don’t imagine that talking point will be true anymore at some point next year.”

The uncertain economic outlook is likely weighing on employers’ appetite for white-collar workers, since they tend to base hiring plans for higher-paid workers on the longer-term business outlook, said Mr. Bunker. By contrast, firms usually gear hiring for waiters, deliverers and other lower-paid jobs according to immediate business needs, he said.

Many companies with among the highest shares of new tech job postings on Indeed in late November were in industries such as consulting, financial services and aerospace.

“For tech jobs, it is still a relatively healthy economic climate and relatively healthy labor market,” said Scott Dobroski, Indeed career expert. “A lot of bright spots for tech workers currently lie outside of traditional tech companies.”

U.S. aerospace companies cut more than 100,000 workers during the pandemic, but have been hiring back at a fast clip and struggling for a year with staffing shortages that have crimped supply chains.

Raytheon Technologies Corp. CEO Greg Hayes said during the summer he was optimistic that layoffs among tech companies would start to ease his own hiring challenges. There are signs that is happening.

“We are starting to see an uptick in interest from the tech layoffs,” said Mike Dippold, chief financial officer of Leonardo DRS Inc., which is based Arlington, Va.

Mr. Dippold said the defense-sensor specialist, like many peers, still had more open positions than it would like, but the staffing situation was starting to improve.

Michael Mauboussin and Dan Callahan shows capital expenditures net of depreciation as a percentage of sales peaked in 1988 at 6.9%. Over the past decade it has averaged 1.8% and fell to 0.5% in 2020 during the pandemic. (200)

Exhibit 25 shows capital expenditures minus depreciation for the population we studied. Using this measure, investment as a percentage of sales peaked in 1988 at 6.9% and bottomed in 2020 at 0.5 percent of sales. The average of the past decade was 1.8%. The two substantial limitations to using depreciation as a proxy for maintenance capital expenditures include inflation and the risk of technological obsolescence. In periods of rising prices (such as 2022), the capital expenditures required to replace new equipment will exceed depreciation because new expenditures reflect inflation whereas depreciation is based on historical costs. Technological obsolescence introduces the likelihood that depreciation overestimates an asset’s useful life.

Michael Mauboussin and Dan Callahan, "Capital Allocation: Results, Analysis and Assessment,"Morgan Stanley, December 15, 2022, https://www.morganstanley.com/im/publication/insights/articles/article_capitalallocation.pdf

According to recent surveys, recently laid-off tech workers are quickly finding new employment with 40% accepting a new position within 30 days.

“…About 79% of workers recently hired after a tech-company layoff or termination landed their new job within three months of starting their search, according to a ZipRecruiter survey of new hires. That was just below the 83% share of all laid-off workers who were re-employed in the same time frame. Nearly four in ten previously laid-off tech workers found jobs less than a month after they began searching, ZipRecruiter found in the survey…”

Sarah Chaney Cambon and Gwynn Guilford, "Laid Off Tech Workers Quickly Find New Jobs,"Wall Street Journal, December 27, 2022, https://www.wsj.com/articles/laid-off-tech-workers-quickly-find-new-jobs-11672097730

Laid Off Tech Workers Quickly Find New Jobs

Most laid off tech workers are finding jobs shortly after beginning their search, a new survey shows, as employers continue to scoop up workers in a tight labor market.

About 79% of workers recently hired after a tech-company layoff or termination landed their new job within three months of starting their search, according to a ZipRecruiter survey of new hires. That was just below the 83% share of all laid-off workers who were re-employed in the same time frame.

Nearly four in 10 previously laid off tech workers found jobs less than a month after they began searching, ZipRecruiter found in the survey.

“Despite the widespread layoffs, hiring freezes, and cost-cutting taking place in tech, many tech workers are finding reemployment remarkably quickly,” said Julia Pollak, chief economist at ZipRecruiter. “They’re still the most sought-after workers with the most in-demand skills.”

Workers previously employed in other industries, including entertainment and leisure, transportation and delivery, and manufacturing, also found new jobs quickly, the ZipRecruiter data showed.

The job market for tech workers is slowing as the broader economy falters under the pressure of Federal Reserve interest rate increases and high inflation. Layoffs and hiring freezes are occurring at startups and large tech companies such as Amazon.com Inc. and Facebook parent Meta Platforms Inc. that hired aggressively early on in the pandemic. The cuts are hitting workers in tech jobs—such as software engineers—and other corporate roles including recruiters.

Still, tech firms making cuts are outnumbered by those that are hiring.

A smaller share of tech workers is spending long periods searching for work after a layoff. About 5% of laid off tech workers who found jobs from April to October had spent more than six months hunting for work, down from 26% of those hired between August 2021 and February 2022, ZipRecruiter said.

Wen Huber, age 23, was laid off from a videographer job at a real estate tech startup in late July. Mr. Huber, who lives near Seattle, thought it would take awhile to land a new position, given he didn’t have a four-year-college degree and many other job seekers were flooding the tech job market.

“When I was applying, to be honest, I didn’t feel very confident because there was such an influx of competition with a lot of people also being laid off,” he said.

Mr. Huber had built up a savings buffer, allowing him to be more selective in his job hunt as he sought to pivot into social media. He documented his unemployment experience in a series of videos on LinkedIn. The videos helped him land an interview—and ultimately an offer—for a social media manager job at a software startup, Mr. Huber said. He started in September.

“I was surprised at how quickly I was able to secure an offer for a job,” he said.

Short job searches in tech have become slightly less common as the labor market slows from earlier in the year. Among people who recently lost a job and worked in tech previously, 37% found a new position within one month of starting to look, according to ZipRecruiter. That compared with 50% in February’s survey.

“We’ve definitely seen a slowdown in hiring, but the reason why is that the job creation level was beyond record highs because of the slingshot effect of the pandemic,” said Ryan Sutton, district president at Robert Half, a global recruitment firm. “From August 2020 to May 2022, it wasn’t red-hot. It was lava-hot.”

Usually when mass layoffs hit, there is an influx of tech candidates contacting his company to help with their job search, Mr. Sutton said.

“We have not seen it yet—we haven’t seen more candidates coming to market,” he said. “Our recruiters are having to hunt and hustle just as much as they had to in the last couple of years.”

Client firms in tech also haven’t mentioned any plans to cut jobs, Mr. Sutton said.

About 74% of workers recently hired after losing or leaving a job at a tech company remained in the industry, according to ZipRecruiter. Others who previously worked at tech companies switched to firms in industries such as retail, financial services and healthcare in the six months ending in mid-October.

Pinnacol Assurance, a 650-person workers’ compensation insurer, saw a 46% increase in job candidates from big tech companies including Meta, Microsoft and Twitter between September and mid-December, said Tim Johnson, the company’s chief human resources officer.

The influx of applicants has helped Pinnacol fill tech-related roles such as data scientist, machine-learning engineer and cloud architect in recent months. In mid-December, Pinnacol’s recruiting team made an offer to a job candidate from Google, Mr. Johnson said.

Ayanna Chapman, 42, started a systems-engineering job job at Pinnacol overseeing its computer systems in mid-November after she was laid off from another systems-engineer position this spring.

A generous severance package allowed her to take several months to freshen skills and study for certifications including in the Python programming language. When the Atlanta-area resident began looking for work in the second week of October, recruiters quickly reached out with interview opportunities, she said.

Ms. Chapman was keen on finding a job with stability and thought Pinnacol would fit. She received an offer from the Denver-based company about two weeks after beginning the interview process, much faster than previous experiences, she said.

“I literally cried tears of joy like, ‘Oh, my God, I got the job. I can’t believe it,’” Ms. Chapman said.

Employers broadly are responding to job candidates fast, likely for fear of losing them in a competitive market with a historically low jobless rate of 3.7%. Nine in 10 ZipRecruiter survey respondents said they heard back from a recruiter or hiring manager within a week of applying for a job.

ZipRecruiter’s most recent survey was drawn from 2,550 U.S. residents who had started a new job within the six months ending in mid-October. The data align with other job-market figures that signal the hot labor market is cooling.

Of the ZipRecruiter survey respondents who said they previously worked in tech, most of them likely worked for tech companies regardless of their occupation, Ms. Pollak said. In other words, a recruiter at Amazon would likely be classified as a tech-industry worker in the survey. But a data scientist at Home Depot would be a retail-industry worker.

Software developer job ads on Indeed are down 34% from a year earlier, and ads for mathematics roles—which include data scientists—are 28% lower. Overall postings are down 7.7% from a year ago.

“With tech workers, it’s a much bigger pullback,” said Nick Bunker, an economist at Indeed Hiring Lab. “It’s still above prepandemic levels, but if the current trend keeps up, I don’t imagine that talking point will be true anymore at some point next year.”

The uncertain economic outlook is likely weighing on employers’ appetite for white-collar workers, since they tend to base hiring plans for higher-paid workers on the longer-term business outlook, said Mr. Bunker. By contrast, firms usually gear hiring for waiters, deliverers and other lower-paid jobs according to immediate business needs, he said.

Many companies with among the highest shares of new tech job postings on Indeed in late November were in industries such as consulting, financial services and aerospace.

“For tech jobs, it is still a relatively healthy economic climate and relatively healthy labor market,” said Scott Dobroski, Indeed career expert. “A lot of bright spots for tech workers currently lie outside of traditional tech companies.”

U.S. aerospace companies cut more than 100,000 workers during the pandemic, but have been hiring back at a fast clip and struggling for a year with staffing shortages that have crimped supply chains.

Raytheon Technologies Corp. CEO Greg Hayes said during the summer he was optimistic that layoffs among tech companies would start to ease his own hiring challenges. There are signs that is happening.

“We are starting to see an uptick in interest from the tech layoffs,” said Mike Dippold, chief financial officer of Leonardo DRS Inc., which is based Arlington, Va.

Mr. Dippold said the defense-sensor specialist, like many peers, still had more open positions than it would like, but the staffing situation was starting to improve.