Tony Roth, the chief investment officer at Wilmington Trust, can rattle off all the numbers related to the economy. He did as much during a special presentation of the firm’s 2023 Capital Markets Forecast to M&T Bank clients last week at a closed event at the Highlawn in West Orange.
But, after explaining a few reasons why a potential recession has held off for now — pointing to warmer weather (lower fuel costs) and a surprisingly successful reopening of China, among other things — Roth addressed the biggest factor: the impact of the labor shortage on the economy.
The fact that there are approximately 11 million job openings but only 6 million people looking for work (it’s usually a 1:1 ratio) is creating an imbalance that is being felt in far more areas than just human resources.
Roth said it has created a new relationship with existing workers and their employers, one in which employees have all the power. This is dramatically lowering productivity — and doing so at a time when labor costs are rising.
“The employer does not have leverage; the employee has leverage,” he told a crowd of about 100.
“The employee is saying, ‘If you don’t like that I work from home, if you want me to come back to work, I’ll go work somewhere else, because I don’t want to come into the office.
“‘If you’re not giving me what I want, I’ll go work somewhere else.
“‘If you want me to work past 5 o’clock, I’ll go work somewhere else.’”
The result, Roth said, is a tremendous churn in the labor market, with employees continuing to migrate to jobs that they seem to prefer — creating a scenario in which nearly as many people are leaving their existing jobs as coming into jobs.
Forget attraction for a moment; this is a retention problem.
2023 Capital Markets Forecast
The inflationary vortex has been the result of several forces — some unforeseen or unforeseeable — spiraling upward. Wilmington Trust officials said its 2023 Capital Markets Forecast focuses on three catalysts that they expect to impact tomorrow’s inflation outlook: The U.S. labor market, China’s economic and demographic evolution and the role of green energy.
Read the forecast here.
“And one of the byproducts of all this,” Roth said, “is that productivity is much lower than what we would expect to see or need to see in order to have a healthier economy.”
Roth sees a bigger-picture issue at play here: We have an attitude problem, he said.
“People are working to live instead of living to work,” he said. “You can think of it a bit as the Europification of America.”
Is this permanent? Roth said no one knows its long-term impact yet.
“But it’s a very real trend today,” he said. “And it’s a trend that really impacts the economy, because it leads to lower productivity.
“Companies are not getting nearly as much out of the workers for the amount that they’re paying for the workers to work. That’s really the seed of the struggles that we’re experiencing in an economy that is reacting to and raising rates.”
This is where the new paradigm comes in.
About Wilmington Trust
Wilmington Trust is a leading provider of wealth and institutional services for M&T Bank, one of the 15 largest U.S.-based, commercial bank holding companies. Wilmington Trust says the sound experience of its professionals and a forward-looking mindset have allowed it to help generations of families and businesses thrive for more than a century.
In the past, the Fed has slowed the economy through the raising of rates in an effort to control prices to a degree that we have contraction and a recession, Roth said.
“That’s how we typically think about and evaluate whether or not a recession is going to occur as a byproduct of Fed policy,” he told the crowd. “That may be the wrong way to think about it. And maybe the wrong paradigm.”
Roth offered this instead: Suggesting we need a recession — we need to have 1 million to 2 million lost jobs — to reset the balance of power that has historically existed between the employer and the employee in this country.
“Only through that cleansing or healing process in the labor market (can) you come out on the other side and have a much better balance in terms of the number of jobs that are open (and) the degree of productivity that employers are able to attain from the workers,” he said.
“From that perspective, if you’re the Fed, you’re not trying to increase rates and hopefully avoid a recession, you’re trying to increase rates and cause a recession intentionally — because it’s necessary as part of the economic cycle.
“And only through a recession will you potentially address issues in the labor market.”