In 1984 there was a popular commercial for Dunkin’ Donuts, featuring an exhausted baker who proclaimed daily, “time to make the donuts”. For nostalgia’s sake it can be viewed here on YouTube. That phrase, because of the popularity of that ad, became synonymous with “time to go to work” in the mid-to-late eighties.
This week our investment committee looked at the recent employment data as our economy booms, with many jobs going unfilled. We have heard from frustrated clients and friends that are business owners who have not been able to find candidates for job openings. Anecdotally, we understand that unemployment insurance may be a contributing factor, but for the sake of analysis let’s put that dynamic aside for now.
The employment situation in the United States is most commonly framed by the unemployment rate, which measures the number of people out of work and actively looking for a job as a percent of the labor force. A decent measure, but one that looks backward. To look forward, we direct you to two pieces of data from the Bureau of Labor Statistics (BLS) that we find compelling: total number of employed people and number of job openings.
Total Employed and Job Openings
The total number of employed people today, 151.1 million (above chart), is up 13% from a year ago, which was the depths of the pandemic-related economic crisis. Even with that sharp rise, the number of jobs waiting to be filled sits at approximately 8.1 million, the highest number of job openings since the BLS has tracked this data. The previous peak was November 2018, with approximately 7.5 million job openings.
Using the recession of 2008-09 as a comparison, we see that the return to work has been much quicker and the demand for workers is significantly higher today than it was 12 months following the financial crisis (below).
The Unemployment Rate + Simple Math
Currently, the rate of unemployment is at 6.1%, down from a massive 14.8% last April. About 17 million jobs have been added in a year, which is a little more than 2x the number of jobs available today. At the current pace those jobs could be filled in six months, which would push the unemployment rate slightly below where it was in February 2020, just prior to the Covid-19 crash. Even if we assume the pace of filling job openings slows, the recovery from the pandemic is rapid; the recovery from previous crisis was much slower. Perhaps the most remarkable data point: it took more than eight years from the depths of the Great Financial Crisis of 2008 for the unemployment rate to break 4% as shown in the below chart. And at its worst it was 10% back then versus almost 15% last year. We have the potential to break below the 4% unemployment rate late this year or early 2022.
What Does It Mean?
Roughly 65% of our economy is based on consumer spending; people need a paycheck in order to spend money. There is no doubt that six trillion dollars of government stimulus helped light the fire. And economists had predicted pent up demand due to the pandemic. But the number of job openings and the pace of the recovery show that the underlying economy is strong. Very strong, in fact – providing more evidence to support our view that stocks can go higher from here.
Ironically, the largest number of job openings is in hospitality. Amusement parks, restaurants, resorts are all gearing up for a huge summer but are woefully understaffed. Last month the AP reported (here) that some restaurants in Florida are offering sign-on bonuses of $400 to allure waitstaff and bartenders back to work.
Dunkin’ (formerly known as Dunkin’ Donuts) has about 8,500 stores across 41 states in the U.S. We’re confident that company would be more than happy to get people to make some donuts!