July 9, 2022

The “Job-Full” Recession

a person circling job listings on a newspaper with a pen

Bottom Line:


The US economy added 372,000 jobs in June, bringing the overall level of employment back to pre-pandemic levels. Of course, the economy itself sits 5% above pre-pandemic levels, proving we can do more with less, albeit painfully. With first-half GDP flat, it’s highly unusual to see such a robust labor market. However, this means the economy may be able to downshift without the normal elastic response to unemployment. In the early 2000s we had a “jobless recovery”; in the 2020s will we have a “job-full recession”?  If so, this bodes well for corporate results given that consumers account for 70% of US economic activity. 2Q earnings season begins next week…time to test the theory.  


The Full Story:


Friday’s strong jobs report paired against negative first quarter GDP and lame second quarter GDP estimates seems disjointed. Analysts expected the US economy to add 270,000 jobs in June. Instead, the economy added 372,000, well above estimates. 152 million Americans held a job in June, reclaiming levels hit just before the pandemic. Overall, the US unemployment rate remains historically low at 3.6%.


Unfortunately, the labor force participation rate (those capable of work that are working or looking for work) remains stubbornly low at 62.2%, down from 63.4% pre-pandemic. Let’s dig into this number a bit. In total, the US civilian population equals 333 million. Of the total population, the number of people eligible for work (over 16 years old) equals 264 million. Of those, 164 million count themselves as either working or looking for work. This means roughly 100 million US citizens over the age of 16 are not in the labor force. Of those, 50 million are retirees. This means the other 50 million Americans are eligible for work but not seeking work. We need them. According to the most recent job openings data, there are currently 1.9 open jobs for each person in the workforce seeking employment:


Chart displaying Job Openings per Unemployed Worker


In theory, those choosing to not enter the labor force have the dual pressures of inflation and evaporating stimulus pools encouraging them to reattach. Unfortunately, that has not happened:


A chart displaying Persons Not in the Labor Force


According to the employment numbers released Friday, the US has 5 million people more “not in the labor force” than before the pandemic. Employers must therefore tackle the delivery of more products and services with chronically lower labor inputs. This problem will not fully abate even if the economy slightly recesses. First quarter GDP declined 1.6% and Goldman slashed their 2nd quarter GDP estimate to .7% on Thursday. It is highly unusual to see a hot job market in a cool economy. Perhaps the numbers are distorted by seasonal adjustments, COVID cases, early retirements, the ”great resignation,” etc. Hard to know.


What we do know is that, taken to its extreme, if a country’s labor force shrinks faster than its GDP, unemployment rates can remain low indefinitely. See Japan. In sum, while the economy may slow or recess, given the present labor shortages, we don’t expect the typical surge higher in unemployment levels. Companies may seek relief in wages instead. Here we find some correlation with the softening economy as year-over-year wage increases have declined from 5.6% in March to 5.1% in June. That is encouraging from the Fed’s perspective, but still well above the 3% rates seen pre-pandemic.


Given the labor dynamics, most economists expect consumer resilience to provide a cushion for any upcoming recession. We agree. The official arbiter of recession is the National Bureau of Economic Research. Their methodology prioritizes changes in the unemployment rate and income metrics rather than simply sequential quarterly drops in GDP. Therefore, a tight labor market within a negative GDP environment could paradoxically lead to strong employment within a weak economy.


COVID economics continue to confound! The good news here for investors is consumer activity accounts for 70% of US GDP. Without a collapse in labor or wages, there shouldn’t be a collapse in corporate revenues…recession or not. Examine the chart below carefully. It’s the amount of GDP we are currently generating per worker. If you can have a “jobless recovery” like we had in the early 2000s, why can’t you have a “job-full recession” in the 2020s as this line normalizes?


Real Gross Domestic ProductAll Employees Total Nonfarm


Have a great Sunday!


David S. Waddell 
CEO, Chief Investment Strategist



Sources: Bureau of Labor Statistics, FRED
David Waddell
Author: CEO Chief Investment StrategistAfter graduating from the University of the South with a BA in Economics, David began his career with Charles Schwab & Co., Inc. in Phoenix, AZ. Having been recognized for his outstanding business development record, David was promoted to the San Francisco- based Institutional Strategic Accounts Team, which interfaced with the Big 5 accounting firms and Schwab’s largest customers. David left Schwab to continue his education at the graduate level in Boston. While earning his MBA degree with a concentration in finance and investments at the F.W. Olin School at Babson College, he was appointed by the college Trustees to manage a team of seven portfolio managers overseeing the student-managed portion of Babson’s endowment fund. David also founded the Babson Investment Management Association to assist undergraduate and graduate students with training and career path planning in the investment management field. As the firm’s Chief Investment Officer, David chairs the W&A investment committee and combines macro economic forecasting, macro market analysis and macro risk assessments to design portfolio strategies utilizing public market securities worldwide. A civic leader in Memphis, David currently acts as Chairman of Epicenter Memphis, and Co-Chair of the Memphis Chamber Chairman’s Circle while also serving as a board member for LaunchTN and the New Memphis Institute. David previously served as chairman for The Leadership Academy, the RISE Foundation, and the Economic Club of Memphis. He also chaired the capital campaign to build the “Live” stage at the Memphis Botanic Garden. David was a member of the 2004 Leadership Memphis class and has been recognized as one of Memphis’ “Top 40 under 40” by the Memphis Business Journal, and as a finalist for “Executive of the Year” in 2007. In addition to weekly columns in the Memphis Daily News and the Nashville Ledger, David has appeared in the Wall Street Journal, USA Today, Forbes, Business Week, Investment News, Institutional Investor News, The Tennessean and Memphis Business Journal. He has also made appearances on Fox Business News, Yahoo Finance, Bloomberg TV, CNBC, and CBS News and ABC News Channels. Read some of David's articles on his author page in Inside Memphis Business. David has two wonderful children, Easton and Saylor, an obedient Labradoodle named NASDAQ, and a devoted Goldendoodle named Ripley.


David S. Waddell


Chief Investment Strategist

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