According to a recent NBC poll, only 33 percent of Americans think President Biden is doing a good job managing the economy. What do they know?
Biden has backed reckless government spending that led to a supply and demand imbalance, undermined our domestic oil and gas production, which helped drive energy costs higher, and encouraged federal handouts that kept workers on the sidelines. Overall, the president can take a good bit of credit for the runaway inflation that is hurting all Americans.
Now he can take credit for solving one cause of that inflation: the shortage of workers and consequent rising cost of labor. Unhappily, the fix entails more bitter medicine.
First, the Federal Reserve has finally promised to tackle soaring prices by raising interest rates and shrinking its balance sheet. The economy is already slowing and many now anticipate a recession. Sure enough, there are signs that the labor market is cooling. That will help the demand side.
Second, with stock and bond markets plummeting, Americans’ savings are being trashed, requiring some older Americans who thought they could comfortably retire to look for a job. That will pump up supply.
Signs of change are popping up. After a mad scramble to add workers over the past two years, tech companies such as Twitter and Facebook have recently slowed hiring, while Amazon, which has frantically built its workforce in recent years, now says it is overstaffed at some warehouses.
Elsewhere, Uber is getting tougher with employees while Carvana, the online used car dealer, has announced it is laying off 2,500 workers, 12 percent of its staff; competitor Vroom is likewise dumping about 14 percent of its workforce.
It isn’t just tech firms that are retrenching. The recent earnings disappointments from Walmart, Target and other retailers, and those companies’ determination to fight rising costs, suggest layoffs are right around the corner.
More broadly, the U.S. added only 428,000 jobs in April, a slowdown from previous months. In addition, unemployment claims have begun to creep higher, albeit from historic lows.
As the Fed works its magic, more companies may decide to cut costs. Hiring freezes and layoffs will follow.
Meanwhile, another source of our labor shortage has been the millions of Americans who took early retirement, reversing a decades-long trend towards people delaying leaving the workforce. Between February 2020 and February 2022, some 2.6 million more people retired than expected. Among people aged 65 to 74, the portion employed at the end of 2021 was 7 percentage points below the share working during the final quarter of 2019.
Some of that retirement surge reflected the short-sightedness of companies that gravely overestimated COVID-19’s economic damage and booted older workers to keep costs under control.
The airlines, for instance, which arguably were among the industries worst hit by the pandemic, offered pilots early retirement and are now scrambling to bring them back. A severe shortage of pilots has forced airlines to cancel flights and trim routes.
Certainly, many older people left the workforce for fear of getting COVID, or because their job disappeared.
But the early exits were also prompted by the country’s increased wealth. Household net worth exceeded $150 trillion for the first time ever in the final quarter of last year, up more than 14 percent from the year before, which also saw a hefty gain. The increases stemmed from rising home and stock prices.
Between the beginning of 2020 and the start of 2022, the broad S&P 500 stock index soared 47 percent. The NASDAQ over that time rose 76 percent. Home prices, too, increased over that time frame.
Most Americans participated in those gains. About 58 percent of Americans own stocks, according to Gallup. Forty percent contribute to a 401K, while 35 percent have an IRA; people over 55 years old have on average about half a million dollars in their IRAs. Over the past two years, they saw those nest eggs grow.
Now we are witnessing enormous wealth destruction as investors price in an economic downturn. In recent weeks, the market rout has cost Americans tens of trillions of dollars. The Nasdaq is off 33 percent from its high last fall, while the S&P has given up 23 percent from its peak.
Home prices have largely held up, but as mortgages climb past 5 percent, numerous markets are beginning to show signs of softening. In crazy hot Palm Beach County, for example, realtors have posted some price reductions for the first time in years.
People who have left the workforce, comfortable in their ability to fund their retirement, will be taking a hard look not only at their diminished portfolios but also at the devastating impact that rising prices have on their ability to make ends meet. Inflation takes a terrible toll on those trying to live on a fixed income.
Chances are it won’t be long before some older people who had decided they could comfortably retire as their portfolios soared in value reassess their financial situation.
What they will see – their investments decimated by the actions of a reluctant and politicized Federal Reserve, a greedy Democratic Party that spent too much and sent inflation soaring and an incompetent White House – may force them to go back to work. They will not do so happily.
Published on The Hill