Excerpt from Yardeni Research Morning Briefing (March 8, 2023)
The persistently strong demand for labor has surprised everyone from soft landers to hard landers. Fed officials are flummoxed. They've raised the federal fund rate by almost 500bps since early last year to cool labor demand and wage inflation. Yet the labor market remains hot.
During January, the demand for workers measured as the sum of employment and job openings totaled 171.0 million, 5.1 million more than the supply of workers as measured by the labor force (Fig. 9). The shortage of workers has hovered around 5.0 million since the end of 2021 (Fig. 10). Here's how Fed Chair Jerome Powell analyzed the employment situation using this framework in a November 11, 2022 speech titled "Inflation and the Labor Market."
Lots of reasonable reasons have been offered to explain why the supply of labor hasn't kept up with demand. However, no one seems to be asking why the demand for labor is so strong. As a card-carrying member of the Baby Boom generation, I blame my cohort for boosting the demand for workers in the restaurant, health care, and trucking & warehousing industries:
(1) Restaurants. Americans generally, not just Baby Boomers, are eating out more often. Having dinner at home with the family is occurring less often. Aging Baby Boomers are likely to go to restaurants more often since their kids are young adults with their own families. Quite a few of these kids may be single and more prone to eat out alone or with friends.
The percentage of the population 16 years and older that is single has exceeded 50% since around 2015, up from under 40% in the late 1970s (Fig. 11). The singles consist of 85.8 million who have never been married and 49.6 million who are divorced, separated, or widowed (Fig. 12).
These demographic trends might explain why retail sales of food services & drinking places has soared to new highs after the pandemic, well exceeding retail sales of food & beverage stores since then (Fig. 13).
Payroll employment in accommodation & food services rebounded dramatically since the pandemic, and the industry had job openings totaling 1.5 million in January (Fig. 14).
(2) Health care. Aging Baby Boomers are clearly increasing the demand for health care services and workers. That's obvious. During February, a record 21.1 million people were employed in health care & social assistance (Fig. 15). In January, there were 1.9 million job openings in this industry.
(3) Trucking & warehousing. Among the industries that recovered fastest from the pandemic were transportation & warehousing. Employment in these two industries totaled 6.7 million during February, 0.9 million more than February 2020, just before the lockdowns (>Fig. 16). What does that have to do with aging Baby Boomers? We can't be bothered going to crowded malls and supermarkets. So we shop online and have the goods delivered to our homes.
(4) Bottom line. Fed Chair Jerome Powell has frequently acknowledged that the Fed has a limited set of blunt instruments for managing the economy. Fighting the Baby Boomers' demand for labor is likely to be a quixotic mission that won't be accomplished.