Investors aren’t limited to only investing in the S&P 500 and the Dow Jones Industrial Average. Every week we share the market trends we are following. We are interested in whether the trends in those markets are continuing or if they are experiencing a temporary or complete reversal.
When we identify trends, we are only concerned about the price data and what it says about any given market. We don’t need to know why a trend has formed to invest, but our human nature wants to understand what is driving them. Each week we try to offer some perspective on what we think the most substantial moves are and what critical drivers are behind them. Here we look at what is going in our globally diversified, non-correlated Crystal Bay Ubitrend strategy.
sugar, Treasury bonds, soybeans, cotton, and the New Zealand dollar. Top detractors were the Chinese yuan, Taiwanese and Chinese equities, live cattle, and Russell 2000 index.
Last week’s continuing trends:
- Sugar
- Treasury Bonds
- Soybeans
- Cotton
- New Zeland Dollar
Last week’s reversing trends:
- Chinese Yuan
- Taiwanese Equities
- Chinese Equities
- Live Cattle
- Russell 2000 Index
What we are taking note of:
What does have December 2020 in common with June 1976? Certainly not fashion, haircuts, or car quality. Thank heavens for that.
Even when it comes to economic statistics, there aren’t many indicators that were at the same level then and now. There is an exception, though: the labor force participation rate.
The labor force participation rate, defined as the percentage of total population over the age of 16 that is either working or looking for a job, tells a story of broad movements in the US society over the last 70 years.
During the baby boom years, women stayed at home to raise large families while men went to work, supporting those large families on a single paycheck. Somehow they were able to afford houses in the suburbs and new cars as well. Economic science today is baffled as to how that was possible.
Labor force participation hovered in a tight range between 58% and 60% throughout those years. The baby boom officially ended in 1964, and in December 1964, labor force participation touched 58.6%. It has never been that low since then.
Women started entering the workforce in the latter half of the 1960s, and the participation rate climbed relentlessly for 35 years, with only minor retrenchments during recessions. It reached a high mark of 67.3% in April 2000. It has never been that high since then.
The recovery from the brief recession in 2001, unlike previous recoveries, didn’t bring people back into the labor force. The participation rate started to slide during the expansion of the early 2000s, remained surprisingly stable during the Global Financial Crisis, and then accelerated its decline. The prime driver of the decline has been the aging of the US population. Baby boomers started retiring in the 2000s, and they will continue to push labor force participation lower at least until the late 2020s. But that is not the whole story.
Since the 2008 recession, there has been a surge in disability. The number of men 16-64 years old who are disabled and not in the labor force rose by 1 million or 23% from 2009 to 2016. Unless there has been a huge health crisis that claimed 1 million victims during those years, we’re most likely witnessing an increasing use of disability benefits by people who can’t find a job.
Since 2016, the labor force participation rate stabilized and even started showing a small increasing trend, until the pandemic hit. Almost 3% of the population left the workforce within two months, an unprecedented event. Only about one-third of them have returned since then, and we’re still running well below the levels of a year ago.
What does this portend for the economy? Low and declining labor force participation reduces the growth rate of the economy. When fewer people work, fewer goods and services are produced. Less money is earned, fewer taxes collected. Given the large debt burden on the economy, we need fast growth in order to pay interest costs and to prevent debt from ballooning further. A low participation rate makes that task harder. It is yet another threat to the fiscal solvency of the United States.
Labor Force Participation Rate (1945 – 2020)
