There are reportedly 8.2 million job openings, almost the identical number of jobs still lost to the pandemic. But even though more jobs are definitely coming, it’s not clear they will reach 7 million or 8 million.
The poor jobs report in May caught virtually all economists off guard and lent credence to the argument that generous stimulus checks are discouraging unemployed workers from re-entering the labor market. Moreover, if the great recession experience is any indicator, it may not be that easy for all the job seekers to reconnect with employers.
The pandemic left the vast majority of skilled, college-educated workers unscathed and the pain fell disproportionately on less-educated, lower-paid people. “If unemployment moves down to 4%, is it spread across industries and wealth categories?” Sonders asked at the Mauldin conference.
Another wild card is whether the three-million-plus people who retired in 2020 can afford to stay out of work. Before the pandemic, people over 65 were the fastest growing sector of the workforce.
Aging populations and shrinking labor forces are a global challenge. Germany and China, the world’s two most powerful exporters, are losing workers faster than America, according to Karen Harris, managing director of global macro trends at Bain & Co.
Lockdown Endgame: A Debt Crisis?
When pandemic life is all over, there is likely to be a major reassessment of America’s response to Covid-19. A growing school of thought holds that there was an overreaction that will cost the country for decades.
Versant Capital’s Connelly notes that the nation spent almost as much in one year to defeat the virus as it did to win World War II. Two decades ago, the national debt stood at $5 trillion. Today, it is approaching $30 trillion, and nearly 40% of that was created in the last year.
The Unites States’s fiscal spending as a percentage of GDP climbed 25% as the government fought the pandemic, while that figure was only 16% in the U.K., 11% in Germany and 5% in China, Harris told attendees at the Strategic Investment Conference. America “set the bar much higher on what we’re willing to spend in an emergency,” she said.
This year, America joined with Canada, the European Union, South Korea and Japan in declaring climate change an emergency, too. How that plays out will be unpredictable, Harris said.
Lockdown critics point to a plethora of problems that harmed wide swaths of the population last year. These range from valuable education lost by the nation’s youth—some places reopened schools in reaction to rising suicide rates—to higher levels of depression in seniors to surges in cancer and heart disease left untreated for too long.
A former chief investment officer of the Arizona State Retirement Fund, Tom Connelly is more familiar with the challenges of matching assets and liabilities than most advisors. While he thinks the measures taken during the financial crisis a decade ago were sound and reasonable, he fears this time fiscal and monetary authorities have gone too far.
“If you look at contingent unfunded government guarantees, it’s nine to 10 times GDP,” he says. “There is a massive refinancing risk. What does it mean for future returns? We haven’t seen the consequences. It’s generational theft.”
Lacy Hunt also has fears about the economy, but they differ significantly from Connelly’s. “This is the sixth debt bubble in U.S. history,” he said at the Strategic Investment Conference.
All these bubbles resulted in deflation or disinflation, and he expects this time to be no different. It’s true that the government sector is eating up savings that ideally should go to generate growth.
But when he looks at the world’s other major economies, Japan, Europe and China, their problems are even worse. In the U.S., the total debt-to-GDP ratio stands at 370%. In Europe, that figure is about 500%, and in Japan it is 650%. All three economic zones are afflicted with birth rates collapsing faster than those in the U.S., Hunt adds. That’s another reason why the “marginal revenue product of debt” is falling faster in the rest of the developed world, he explains.
If there is any scenario we should fear, “it’s Japan, not Weimar Germany,” Yardeni said. Summer school may not be where one wants to be, but at least America is the smartest kid among the dunces.