Bob’s Journal for 4/14/22

‘Great Resignation’ Reversing Course

The latest data indicate many of those who retired early in 2020 and 2021 are returning to the workforce.

About 2.6 million Americans retired earlier than expected from February 2020 through October 2021, according to estimates from a Federal Reserve economist.

Economists assumed many left the work force because they had fears about the pandemic, or their employers closed during the worst period of the pandemic and the workers couldn’t find comparable new jobs.

Other early retirees calculated that the rising values of their investment portfolios and homes made accelerating their retirement dates feasible. Whatever the reasons, many of those workers are coming back to the labor market.

The share of retirees re-entering the work force reached 3% in February 2022. That’s the highest level since March 2020. The recent peak was 3.33% in September 2019.

Looking at it from another angle, the percentage of the labor force that is over 55 and either working or looking for a job was 38.9% in March 2022. It was down to 38.4% in October 2021.

The total number of those over age 55 in the labor force still is less than before the pandemic, but it’s getting close to the old peak.

The Department of Labor estimates that about 480,000 people over age 55 entered or re-entered the work force in the last six months. In the six months before the pandemic, only 180,000 people in that age group joined the labor force.

Some are returning to work because they weren’t prepared for the nonfinancial aspects of retirement. They need a way to spend their time or weren’t ready for a full-time life of leisure. They need a purpose to their daily activities. Some needed the regular social contacts that work provides.

More recently, some decided they weren’t as financially prepared for retirement as they thought after experiencing declining stock prices and rising inflation.

Changes in the labor market also are drawing some people back to work. The worker shortage is causing employers to make offers that some retired workers find too attractive to pass up.

A number of people decided to retire more or less spontaneously after the pandemic began. They didn’t give enough thought to the long-term aspects of their retirement plans. Fortunately, they’re adjusting and refining their plans to have successful retirements.

The Millionaire Personality

Researchers in Germany set out to find if personality is relevant to wealth accumulation, and they concluded it is.

Using data supplied by the German Institute for Economic Research, the researchers concluded that self-made millionaires are more likely to be extraverted, open, risk-tolerant, conscientious and emotionally stable than the rest of the population.

Another finding was that those with the most wealth tended to resemble that profile more closely. Interestingly, the researchers found essentially the same personality profile among people who weren’t as wealthy but, after starting life with few financial resources, worked hard, earned money and had financial success.

Those who inherited wealth were less likely to be emotionally stable or have the other qualities of the self-made wealthy.

Who Are These Economists?

Longtime readers know I’ve been saying for some time that the Federal Reserve’s easy monetary policy would lead to higher inflation than the markets or the Fed anticipated.

Yet, a recent article on Vox.com said that economists and other experts don’t have a consensus explanation on what is causing the current inflation. The article says it is hard to know what’s causing inflation, so it is hard to reduce it.

You probably have seen other media reports and comments from politicians expressing uncertainty about what’s causing inflation or blaming it on greed or some similar factor.

Yet, Federal Reserve officials seem to be admitting that easy money caused the inflation surge and believe that tighter monetary policy will reduce the inflation rate.

Here’s an article that makes fun of the Vox.com piece and explains clearly that the combination of fiscal and monetary stimulus caused the inflation surge.

The article is worth reading for both its arguments and entertainment value. The points made are why I expect the Fed will have to take stronger actions than currently anticipated to control inflation. They’re also why bonds will continue to have a tough time in the coming months as will stocks that depend on low interest rates and a lot of liquidity in the markets to support their prices.

The Data

The Consumer Price Index (CPI) increased in March by 1.2%, up from a 0.8% increase in February. That’s the highest one-month increase since 2005.

Over 12 months, the CPI increased 8.5%.

The 12-month increase is the highest since December 1981. March was the sixth consecutive month the 12-month increase was above 6%.

Excluding food and energy, the core CPI increased 0.3% in March, down from the 0.5% increase in February. For the last 12 months, the core CPI increased 6.5%, just above the 6.4% increase recorded in February.

The 12-month increase for the core index is the highest since August 1982.

The lower increase in the core CPI shows that price increases are among the highest for food and energy. But the increase above 6% in the core CPI shows that inflation is broad-based and not isolated to a few sectors that are having supply problems.

The Producer Price Index (PPI) increased at a higher rate. The PPI rose 1.4% in March and 11.2% over 12 months. The 12-month increase is the fastest ever for the PPI, for which the data goes back to 2010.

Excluding food and energy, the core PPI increased 0.9% in March and 7% over 12 months.

The Small Business Optimism Index from the National Federation of Independent Business (NFIB) declined by 2.4 points in March from February’s level to 93.2.

March is the third consecutive month the index was below its long-term average of 98.

Inflation was cited as the primary concern by 31% of business owners. That’s the highest reading of inflation as the primary concern since the first quarter of 1981. With the March report, inflation moved ahead of labor quality as the top problem of business owners.

A net 72% of owners reported raising prices, the highest level in the survey’s history.

Owners expecting better business conditions in the next six months were a net negative 49% — indicating the percentage of those who responded that business would be better is 49 percentage points less than those who said it would worsen. That marked the lowest level in the survey’s 48-year history. New unemployment claims dropped by 5,000 to 166,000 in the latest week. That’s the lowest level since November 1968.

Continuing claims, which are a week behind new claims, increased to 1.523 million.

Credit use by consumers increased at an annual rate of 11.3% in February from January’s level. That’s the highest monthly percentage increase in consumer credit since November 2001. The amount of outstanding consumer credit in February, $41.8 billion, was a record high.

The big percentage increase was in revolving credit, which is mostly credit cards. Revolving credit increased 20.7% for the month, while nonrevolving credit, mostly student and vehicle loans, increased 8.4%.

But the dollar value increase in student and vehicle loans far exceeded the increase in revolving credit.

This surge in credit could indicate that inflation is starting to hurt consumers. Unwilling to reduce purchases of goods and services to accommodate higher prices, many consumers could be borrowing to maintain their lifestyles. If so, that can continue for a limited time.

The Markets

The S&P 500 lost 2.82% for the week ended with Tuesday’s close. The Dow Jones Industrial Average fell 1.19%. The Russell 2000 declined 2.87%. The All-Country World Index (excluding U.S. stocks) dropped 2.99%. Emerging market equities decreased 3.53%.

Long-term treasuries lost 4.30% for the week. Investment-grade bonds declined 2.71%. Treasury Inflation-Protected Securities (TIPS) fell 0.57%. High-yield bonds dropped 1.47%.

In the currency arean, the U.S. dollar rose 0.83%.

Energy-based commodities increased 1.49%. Broader-based commodities rose 2.89%. Gold gained 2.55%.

Bob’s News & Updates

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