Let’s take look at some of the historic circumstances affecting these transformations taking place in today’s labor market. The unemployment rate continues to drop (presently 4.9%) close to what was previously considered “full employment”. Wage growth of 4.6% has been unprecedented for decades in this environment, but, there still remain 11 million job openings. Among the dynamics behind these circumstances are;
• Wages have lagged most measures of the economy — since the 1970s;
• Technology keeps creating and destroying entire market sectors;
• Household balance sheets are as cash rich and debt managed as ever;
• Actual wealth in the US is at record highs, albeit with a high wealth gap;
• Early retirement is pulling workers away from the labor market;
• Childcare remains a challenge in most of the country;
• Covid-19 is still a threat to frontline workers.
These days, the labor market is even more unusually dynamic than is typical. It is not an exaggeration to suggest it is in the midst of a radical transformation. The problem is not that economists cannot predict it; rather, it’s that they do not as of yet fully understand it.

Last year, the covid lock-down resulted in a dramatic collapse of economic activity. However, the equally dramatic cash stimulus payments to consumers mitigated that collapse in a sling-shot type of recovery and the shortest recession on record. Both efforts were ugly and messy and were untested in the real world but were implemented on reasonably sound “virus spread containment”, and modern economic theory. It generally worked well, but that was last years news. Now we are left to clean up the messiness of if all and to deal with the new and interesting side effects of drastic changes in the morphing and modernizing labor supply and labor markets. Blind-sided employers had no real opportunity to plan for, and are being forced to adapt to new realities, largely with automation as labor is now in short supply. The new reality is that low pay in mundane work in bad working conditions are rapidly disappearing in the rear view mirror. As Warren Buffet once famously said, employers are finding out that “when the tide goes out, we discover who has been swimming naked.’

The economy continues to grow in the midst of this massive transformation and rotation among sectors, and of capital investment, also not yet fully understood. Inflation persists due to supply chain disruptions and distribution channel bottlenecks. The market will continue with ups and downs throughout this process, but we remain fully committed to our investment in the un-challenged “dominant” supplier (nvda) of core technologies for robotics, automation, self driving vehicles, cryptographic currencies, digital modeling and printing, all unbelievably derived from decades of rapidly advancing technology of, yes, video game graphics microchips, GPU’s.

As always, we remain cautious and vigilant. Please remember that because these quarterly thumbnail sketches are very brief, do not hesitate to call me if you wish to discuss your account or our outlook in greater detail.

Very Best Regards,

Joseph L. Toronto, CFA

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