When Will People Finally Get Back to Work?

'Help wanted' signs are everywhere... Companies are paying up for staff... When will people finally get back to work?... It's economic whiplash... When you can't work from home... 'I quit'... Bounce-back stocks...

It's happening at Amazon... Starbucks... UPS... IBM...

And at hundreds of other companies across the country.

If you run your own company, you've likely seen it firsthand. And as a consumer – at the grocery store, dealing with the cable company, renting a car, or getting a taco – you suffer from it: slow service, long wait times, and shorter store hours.

I (Kim Iskyan) am talking about the labor shortage that's gripping corporate America – and the attendant hikes in wages across the economy to attract, and retain, workers.

McDonald's (MCD) says it has raised wages by more than 15% since last year – and that some restaurants are cutting late-night service because they don't have enough workers. Last year, Costco Wholesale (COST) raised its minimum wage to $16 per hour... and just hiked it again, by a dollar. Amazon (AMZN) is advertising on national television to try to find 150,000 seasonal workers for the holidays – paying an average of $18 per hour. Domino's Pizza (DPZ) posted a fall in sales because it doesn't have enough delivery drivers – who on average earn nearly $16 an hour.

"Help wanted" signs (or LinkedIn job ads) are everywhere... from your local Chinese takeout, to the city's big law firm, to major companies like Amazon, Starbucks (SBUX), and UPS (UPS).

As the Financial Times explained last week...

Some of America's largest companies are struggling to secure enough staff to handle a surge in consumer demand, despite raising wages to levels that are prompting them to push up prices to protect their profit margins.

And as Economics 101 tells us, when there's an increase in demand for workers, and not enough supply, there are two options: unfilled jobs or higher wages. For companies facing this conundrum, it's something between a serious inconvenience... and going out of business.

And Reuters reported last week...

Labor shortages may be the most intractable of the cost risks that U.S. companies faced in the latest quarter, and as the earnings season moves into its peak there are signs the problem will persist.

As I'll explain, there are many reasons for the labor shortage. And it's a challenge that has a ripple effect throughout the economy...

Right now, there are more job openings than almost ever before...

As of the end of August – the latest data available – there were 10.4 million jobs available in the U.S. economy. That was the second-highest level ever, after July's 11.1 million... after what were new all-time highs in June and May. To complete the picture, there are only 7.7 million unemployed people, not nearly enough to fill the vacancies.

Incredibly, as recently as April 2020 – because of the pandemic-related shutdown – the unemployment rate in the U.S. hit its highest level since the Great Depression, at 14.7%. At that time, 23.1 million Americans were without a job... and "help wanted" signs were as scarce as a snowflake in Death Valley.

It's like economic whiplash, from historic unemployment... to epic job creation... and now, more jobs than would-be employees.

Adding to the jobs problem is the 'great resignation'...

Record numbers of people are leaving their jobs.

A curious corner of labor statistics – rarely appreciated for their entertainment value – is data on what the U.S. Bureau of Labor Statistics calls "quits." That's when an employee voluntarily and willingly leaves his or her place of work.

In August 2020, 3 million Americans (2.1% of the workforce) called it quits. In August 2021, 4.3 million people – a jump of 43%, and equivalent to 2.9% of all employees – clocked out for good. That's more than ever before in a single month... And it's a record after a string of previous all-time highs this year.

For a developed economy, where changes in most macroeconomic trends happen at the speed of a sloth, that's an enormous shift.

A big contributor to this is people in the services industry...

They're the underpaid, underappreciated "essential workers" who couldn't work from home when the pandemic hit... The "quit rate" in the accommodation and food-services industry – where interacting with potentially contagious, non-mask-wearing people is a critical part of the job – is by far the highest of any sector of the economy.

In August, 6.8% of the sector's entire work force ‒ nearly 900,000 people ‒ quit... over the previous five months, more than a quarter of the entire workforce in the sector left their jobs. COVID-19 highlighted the opportunity cost... and risk... of these sorts of jobs. As a result, many workers are finding something else to do.

Meanwhile, the number of foreign workers has been dropping...

A key ingredient to a smooth-moving American economy is its ability to attract foreign workers. Today, the U.S. has more immigrants (45 million) than any other country. This part of the workforce has played an essential role in driving economic growth.

Nearly two out of every five people in Silicon Valley were born outside the country. According to the immigration think tank New American Economy, as of 2018, 44% of Fortune 500 companies were founded by an immigrant or the child of immigrants.

And more to the point for the current labor shortage – and whatever your feelings about the politics of immigration – these workers also do a lot of the grinding, hard labor that native-born workers don't want to do... That includes jobs in some of the industries facing the biggest shortfalls in employees right now, such as leisure and hospitality.

But there's a problem: The Bureau of Labor Statistics shows that the size of the foreign-born labor force in the U.S. has barely grown since 2016... COVID-19 travel restrictions and border lockdowns have heightened this shrinkage in the flow of immigrant workers.

Contrary to popular opinion, pandemic stimulus checks didn't discourage workers...

Numerous rounds of "stimmy" – COVID-19 economic stimulus checks – softened the blow of unemployment during the pandemic, as did additional unemployment insurance and other benefits from Uncle Sam. And as jobs remained unfilled, it was easy to point to this free money as a cause.

But a number of studies have debunked the notion that emergency cash from the government played a significant role – on an economy-wide level – in demotivating would-be workers. A paper released in February by the National Bureau of Economic Research found that the "sharp, and unprecedentedly large, reduction" in unemployment benefits (by $600) in the summer of 2020 "did not lead to any sizable increase in employment"... so, the study says, removing benefits did not send people back to work.

A study by the Federal Reserve Bank of New York revealed that more than 70% of funds from the first round of COVID-19 stimulus went toward debt repayment or savings... not Walmart (WMT) runs or to fill up the gas tank, which is what you'd expect of recipients replacing work income with government handouts. And the 26 states that withdrew from federal unemployment programs in June didn't see a subsequent reduction in unemployment, according to a study completed in late August.

So far, the end of pandemic stimulus in early September – which could amount to $5,600 for an eligible American adult – hasn't reignited job demand.

Meanwhile, a 'treat yourself' attitude has spurred demand...

With COVID-19 lockdowns easing and with that stimulus cash still unspent, millions of Americans have been in "treat yourself" mode... as has pent-up demand for everything from rental cars to iPhones to a meal at a restaurant.

Retail sales rose 13.9% in September compared with a year ago, a figure that looks like a typo when reporting on the American economy... To offer one data point, the Wynn Las Vegas resort where Stansberry Research held its annual conference last week was booked to capacity... as were flights to and from the venue.

All of these labor shortages are straining the U.S. service economy. In the third quarter of the year, gross domestic product, or total economic output in the U.S., rose by a paltry 2%, a sharp drop from the 6.7% jump in the second quarter of 2021 – and even more significant given that retail sales increased so drastically in September.

Of course, there are a lot of reasons for production to soften... but just not having enough people to meet the huge demand is a big one.

Supply-chain constraints also come into the picture...

We've written recently about how the global supply chain today is full of weak links.

A number of factors are fouling up the supply chain... not enough containers or ships to transport goods... COVID-19 lockdowns that disrupt production... and labor shortages that stymie distribution. It's one of the defining characteristics of the global economy right now.

As I wrote in September, I was living in a house that echoed – because it was empty – for months while waiting for my household goods to make it across the ocean, from Dublin, Ireland. And as I wrote then...

Of course, it's not just my household goods that are taking longer than usual to get from point A to point B... It's everything.

You know what I'm talking about if you've tried to buy a fridge, a computer, a car, or pretty much anything lately. You can't get the object of your consumerist desire for weeks (if you're lucky) or months (which is more likely). It frustrates our yearning for instant gratification – we're accustomed to getting whatever we want, delivered within days at the latest...

Like other basic infrastructure of modern civilization – the Internet, electric grid, and cellular networks, for example – the global supply chain is something that we take for granted... until, that is, it stops working.

What does it all add up to?...

David "Doc" Eifrig recently wrote an Advanced Options issue about a point I stressed earlier... There are not enough unemployed workers to fill the 10-million-plus vacancies.

As Doc wrote in last month's issue...

We're seeing record job openings for factory workers, teachers, nurses, and various positions in the business world.

The chart below shows how extremely tight the labor market is in the U.S. It takes the unemployment level and divides it by the number of job openings... In other words, it's a ratio that shows how many unemployed Americans there are per job opening.

The dotted line means that for every person looking for work, one job is available. When you go below the line, there are more open jobs than unemployed folks to fill them.

As of August, there were about four unemployed Americans for every five job openings (or a ratio of 0.74). Take a look...

Doc goes on to discuss businesses that are benefiting from the labor crunch, because these businesses' core services provide solutions for other businesses that need to hire... He also goes on to talk about companies that have been walloped by labor shortages and whose stock prices have taken a dive.

Doc points to one company in particular that he feels will make a strong comeback when the labor supply settles in. Its stock is down about 25% since May and it's still struggling to find workers. Says Doc...

What we have... is a market leader in a growing industry, ahead of one of its busiest times of year. And we think the stock has fallen too much.

In the end, Doc recommended a way to profit through the options market as this great business overcomes its temporary bumps in the road and rebounds in the weeks ahead. If you're an Advanced Options subscriber or Stansberry Alliance partner, you can read Doc's full write-up on this company right here. And if you'd like more information about how to become a subscriber, click here.

New 52-week highs (as of 10/29/21): Automatic Data Processing (ADP), CBOE Global Markets (CBOE) Costco Wholesale (COST), Cintas (CTAS), Comfort Systems USA (FIX), Alphabet (GOOGL), Intuit (INTU), LendingClub (LC), Microsoft (MSFT), Cloudflare (NET), Nestlé (NSRGY), Novo Nordisk (NVO), ProShares Ultra QQQ Fund (QLD), ProShares Ultra Technology Fund (ROM), S&P Global (SPGI), ProShares Ultra S&P 500 Fund (SSO), Suncor Energy (SU), Thermo Fisher Scientific (TMO), United Rentals (URI), ProShares Ultra Semiconductors Fund (USD), and Vanguard S&P 500 Fund (VOO).

Today's mailbag includes feedback on the past two Friday Digests from our colleague Dan Ferris. You can catch up on those essays here and here. And as always, we welcome your thoughts, comments, and observations at feedback@stansberryresearch.com.

"Dan, as always, I enjoyed your essay. Particularly the last paragraph. I think most of our current government should go to Hell, but I guess that is up to a higher power than us. Our current socialist officials have become the masters because the servants have allowed them.

"I have always believed that our rights are not inherent, but earned by accepting responsibility for our actions and behavior. Rights and responsibility are like Yin and Yang in a wise Chinese philosophy. One side just does not work without the other.

"Whether rights are free speech, equal protection or whatever, without accepting the responsibility that goes along with exercising those rights is ludicrous." – Paid-up subscriber Tim L.

"Dear Dan, I lived in Moscow as an expat teenager for the last few years of the Soviet Union.

"While it was admittedly the era of glasnost, there was nevertheless a 70-year shadow of unimaginable oppression still lingering. (If you've seen the excellent miniseries on Chernobyl, which happened the year before I moved to Moscow, you can get some sense of the tenor of the place.)

"And yet, shockingly, my Russian friends at that time, who were a little older than me, generally college students, felt more comfortable speaking freely on the streets of Moscow than most people do in the United States today. (I'm basing that on both recent surveys about self-censorship and personal experience where I live in New York.) This realization has left me slack-jawed for the last couple of years. Warm regards." – Paid-up subscriber Andrei L.

"Dan's Digest on Digital World and Apple is a classic: clever and beautifully written. Thanks for that." – Paid-up subscriber John D.

Happy investing,

Kim Iskyan
Ashton, Maryland
November 1, 2021