Recession during a labor shortage?

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Submitted by JPJones on May 2, 2022 - 3:47pm

Was out getting drinks with a friend over the weekend talking amateur economics and it occurred to us that we've never experienced or could recall a recession happening during a labor shortage, which is a real possibility right now. I'm interested in hearing all of your takes on what that scenario might be like. I don't even really know where to start.

Submitted by phaster on May 2, 2022 - 4:10pm.

JPJones wrote:
Was out getting drinks with a friend over the weekend talking amateur economics and it occurred to us that we've never experienced or could recall a recession happening during a labor shortage, which is a real possibility right now. I'm interested in hearing all of your takes on what that scenario might be like. I don't even really know where to start.

simple explanation as I see things,... ever consider the economic idea of stagflation?

in other words consider what we have now w/ covid, not enough goods or services being produced (due to broken supply chains) AND lots of money trying to buy the limited number of items being offered in the market place

said another way we have price inflation for goods and services BUT for the most part, the economy is stagnant for a great majority of people just trying to make a living day to day

Submitted by EconProf on May 2, 2022 - 4:25pm.

Many reasons, but here are three factors I've read about:
1. The overly generous COVID free money meant that for many people getting a job would mean a drop in income, this despite the rapidly rising hourly pay rates offered by desperate employers.
2. California's generous rent relief programs encourages many to stay unemployed.
3. Mothers with school-aged children quit to take care of their new responsibilities at home, especially in the blue states like CA with strong teachers' unions. A surprising number are deciding to not return to work.

Submitted by sdrealtor on May 2, 2022 - 5:12pm.

EconProf wrote:
Many reasons, but here are three factors I've read about:
1. The overly generous COVID free money meant that for many people getting a job would mean a drop in income, this despite the rapidly rising hourly pay rates offered by desperate employers.
2. California's generous rent relief programs encourages many to stay unemployed.
3. Mothers with school-aged children quit to take care of their new responsibilities at home, especially in the blue states like CA with strong teachers' unions. A surprising number are deciding to not return to work.

So how are things in red state St George? Looks like median is up 11% y-o-y per Redfin. Sound about right? Market slowing down yet with rates?

Submitted by Coronita on May 2, 2022 - 5:20pm.

EconProf wrote:
Many reasons, but here are three factors I've read about:
1. The overly generous COVID free money meant that for many people getting a job would mean a drop in income, this despite the rapidly rising hourly pay rates offered by desperate employers.
2. California's generous rent relief programs encourages many to stay unemployed.
3. Mothers with school-aged children quit to take care of their new responsibilities at home, especially in the blue states like CA with strong teachers' unions. A surprising number are deciding to not return to work.

What... the...fuck.....seriously? This is only a blue state issue????

God if I turn into a senior citizen like this, someone just shoot me and put me out of my misery...I don't want to become into a grumpy old fart.

Submitted by The-Shoveler on May 2, 2022 - 5:26pm.

IMO Labor shortage can turn into a Labor surplus very fast once people stop spending.

Right now there is still just lots of money sloshing about.

That said I still stick to my theory that the FED and TPTB are scared to death of a recession for some reason and will issue helicopter money at first sign of serious downturn.

But if we were to get a serious recession I think it would look a lot like 2000 when everything crashed in a heart beat and even good tech people found themselves out on the street.

Submitted by Coronita on May 2, 2022 - 6:30pm.

The-Shoveler wrote:
IMO Labor shortage can turn into a Labor surplus very fast once people stop spending.

Right now there is still just lots of money sloshing about.

That said I still stick to my theory that the FED and TPTB are scared to death of a recession for some reason and will issue helicopter money at first sign of serious downturn.

But if we were to get a serious recession I think it would look a lot like 2000 when everything crashed in a heart beat and even good tech people found themselves out on the street.

I guess it depends on what.
For cars and electronics, there's a supply chain issue, partly because China factories are closed.

For example, for robotics we need to get these Falcon 500 motors, but they are all backordered.
https://www.vexrobotics.com/217-6515.html

Drivetrain uses 8, and attachments use several more, and need spares, and can't get them.

Good thing competition season is over.

Manufacturing for other things is also backlogged just because some of these factories are running at reduced capacity due to closures... For example, there's a 3 months wait for swerve drive systems...

https://www.swervedrivespecialties.com/p...

For shits and giggles, a dealer in glendale wanted to know if I was interested in purchasing an i4 since they had 2 that are in stock not available elsewhere. They wanted $10k above MSRP....
I balked but again, supply chain issue is pushing car sales prices at unheard of prices.

Submitted by EconProf on May 2, 2022 - 7:33pm.

Yes, sdr, rates will probably hurt values everywhere.
Glad I bought my three condos last summer. Two of them in same complex (3 Br, 2 Ba, double garage), for $335k each. Zillow puts them at $407k now, for what that's worth. Another 2,1 condo for $190K, rents for $1100, and Zillow has no updated value for it. Vacancies are non-existent.
This weekend is the Ironman World Championship, which we permanently stole from Hawaii, so lots of visitors, all looking buff too!

Submitted by sdrealtor on May 3, 2022 - 12:27am.

Why are those cap rates so low? Wouldve expected much better. That appreciation is also far below here. Family members 2BR condo went from appraising 570K last Summer to inferior condition but same unit next door recently closed for $750K. Vacancies non-existent here also. I thought everyone was leaving here for there. I guess not so much. Rents here also rising the fastest in the country

My prediction will be that rates hit much harder there than here. We have rapidly growing life science and tech industries here that make us less sensitive to interest rate risk than a place like that. Heaven forbid WFH goes away and you may have a full scale melt down. We'll know for sure in a year or two

This is one major reason CA isnt going anywhere

https://www.princetonreview.com/college-...

Enjoy your one weekend of healthy buff people in town. It will remind you of life in SD

Submitted by Coronita on May 3, 2022 - 7:07am.

EconProf wrote:
Yes, sdr, rates will probably hurt values everywhere.
Glad I bought my three condos last summer. Two of them in same complex (3 Br, 2 Ba, double garage), for $335k each. Zillow puts them at $407k now, for what that's worth. Another 2,1 condo for $190K, rents for $1100, and Zillow has no updated value for it. Vacancies are non-existent.
This weekend is the Ironman World Championship, which we permanently stole from Hawaii, so lots of visitors, all looking buff too!

Why would you buy condos instead of SFH? I thought housing was cheap in utah.

Submitted by EconProf on May 3, 2022 - 2:22pm.

Good question Coronita, and a simple answer: condos have no yard maintenance for me, are easily rented, appreciate at the same rate as houses, and are less likely to have families with kids.
sdr: not sure where you are getting a 10% appreciation rate here--mine have gone up 21.5% since July, and I've heard 20% is the norm. This will probably be a lot less from now on due to rising interest rates.
We are still getting an influx of Californians and the builders cannot keep up with the demand. Utah has an unemployment rate of 2%, so they are coming for the jobs, as well as low taxes, good schools (which largely did not close), clean government, and cheap housing.
But before you remind me--yes, I miss the San Diego weather.

Submitted by sdrealtor on May 3, 2022 - 2:47pm.

EconProf wrote:
Good question Coronita, and a simple answer: condos have no yard maintenance for me, are easily rented, appreciate at the same rate as houses, and are less likely to have families with kids.
sdr: not sure where you are getting a 10% appreciation rate here--mine have gone up 21.5% since July, and I've heard 20% is the norm. This will probably be a lot less from now on due to rising interest rates.
We are still getting an influx of Californians and the builders cannot keep up with the demand. Utah has an unemployment rate of 2%, so they are coming for the jobs, as well as low taxes, good schools (which largely did not close), clean government, and cheap housing.
But before you remind me--yes, I miss the San Diego weather.

As mentioned above it was per Redfin. So 20% lags SD which has been 30%. Id expect you to lag even more as your market should be more interest rate sensitive without the type of employment we enjoy here. Keeping up with demand is tough everywhere with supply chain issues so no surprise there. Unemplyment back under 5% in CA and 3.4% in SD as of March so same story here.I did find it interesting that UT has a high percentage of government workers than CA. Who wouldve thought that!

New state motto should be.

Come to Utah! Good clean government and more of it!

There always have been those leaving CA who couldnt make it here. No shame in failing, at least they tried

Submitted by barnaby33 on May 3, 2022 - 3:37pm.

Though I have no hard evidence I feel like a lot of the labor shortage is really a skills mis-match. Anyone who says last years stimulus payments account for millions not wanting to work now is living in a different world. That money has long been spent. The jobs are mostly in the gateway cities and to a certain extent the increase in housing costs has ejected some folks from those places to other less costly places.

In the news today SD actually lost population this year! It didn't help RE prices though. Probably because the vast majority of the emigrants couldn't afford to buy houses and that's why they left.
Josh

Submitted by The-Shoveler on May 3, 2022 - 5:13pm.

The largest Labor shortages are at the lower end of the skills/wage Jobs.

IMO I keep to my theory that for some reason TPTB are terrified of a serous recession and will do anything to avoid one.

But if the fed is allowed to really follow through on their mission, this could get real bad real fast.

Anyway Just my opinion.

Submitted by EconProf on May 3, 2022 - 6:09pm.

sdr: Interesting you say that UT has more gov't employees per capita than CA, since CA ranks 8th in state taxes per capita ($4,424) and UT ranks 37th (2,543)--I googled state taxes per capita. I guess we pay our government employees less.
This ignores local taxes, and CA has that great Prop 13, right? The property taxes on my house are a little over 1/2% of value.
Regarding housing appreciation rates, I googled "US State Home Price Appreciation", and Utah came in 2d in the nation at 27.05% as of end of 2021 (AZ was 1st). CA came in at 16th with 19.62%. SD undoubtedly came in better than the state average. By the same token, St. George is doing better than the state average. We are getting an influx of people from the Salt Lake City area. Some come for the weather (!), and reportedly SLC has air pollution and a homeless problem.

Submitted by sdrealtor on May 3, 2022 - 7:42pm.

I don’t say that the BLS says that. Take it up with them

This isn’t about Utah or California in this case. You left San Diego for St. George in the name of greener pastures!

Breaking news! Meth contaminated house sells for record price!

In San Diego you may ask? No but how about California? No! See for yourself!

https://komonews.com/amp/news/nation-wor...

In the home of the good clean government and lots of it!

Submitted by JPJones on May 3, 2022 - 9:40pm.

Thanks guys! These are some great takes and I appreciate the time. We've heard 'stagflation' kicked around and know happened in the '70s. I don't have a good understand of what it looks like, but I wonder if that's what we're already seeing. I took a trip to a couple Targets and a BestBuy yesterday with my kid and was shocked at how empty the shelves were outside of the food isles. Add to that, we bought a car in this earlier this year. We started shopping last October and couldn't get the exact one we wanted until the end of March, which we only got because we gave up on an important feature.

Submitted by flyer on May 4, 2022 - 12:56am.

EP, so glad to hear you're doing well. Although there do seem to be more and more people who can't make it CA, we know a number of people, like you, who have chosen to leave CA, and not because they couldn't make it here.

Many feel they have maxed out their California experience over a period of many years, and just want a change, or have other reasons. Most are in a position where they can come back anytime, so leaving temporarily, or otherwise, is not really an issue.

Personally, we love everything about our lives in CA, and, after seeing what most of the world has to offer, really don't feel the need to make a change, but still respect the need or desire others may have to do so.

Submitted by EconProf on May 4, 2022 - 5:00am.

Thanks Flyer, and completely agree. COVID plus the ability to work remotely from home has upended decisions of where to live in many ways. It's not just a San Diego vs. St. George issue. People are fleeing the big cities for both outer suburbs and ex-urbs (example--LA to Riverside County).
St. George has a building boom of big houses near our airport because of direct daily flights to LA so CA workers can check in once a month or once a week with their employer.

Submitted by EconProf on May 4, 2022 - 5:04am.

flyer wrote:
EP, so glad to hear you're doing well. Although there do seem to be more and more people who can't make it CA, we know a number of people, like you, who have chosen to leave CA, and not because they couldn't make it here.

Many feel they have maxed out their California experience over a period of many years, and just want a change, or have other reasons. Most are in a position where they can come back anytime, so leaving temporarily, or otherwise, is not really an issue.

Personally, we love everything about our lives in CA, and, after seeing what most of the world has to offer, really don't feel the need to make a change, but still respect the need or desire others may have to do so.

Submitted by EconProf on May 4, 2022 - 5:06am.

Whoops, still trying to figure out the Piggington posting rules!

Submitted by sdrealtor on May 4, 2022 - 7:43am.

EconProf wrote:
Thanks Flyer, and completely agree. COVID plus the ability to work remotely from home has upended decisions of where to live in many ways. It's not just a San Diego vs. St. George issue. People are fleeing the big cities for both outer suburbs and ex-urbs (example--LA to Riverside County).
St. George has a building boom of big houses near our airport because of direct daily flights to LA so CA workers can check in once a month or once a week with their employer.

But none of that has anything to do with why you left. You constantly put forth subterfuge and strangely, like many, choose to take repeated pot shots at a California that treated you very well in life’s journey. I’m pretty certain you already or someday will look back and cherish your time here. You left to be with family and that’s a wonderful reason! There’s no need to justify it any further. You don’t have to put a beat down on California to make you feel better about leaving. You had the best reason already. All kidding aside I hope you and they are doing great

Submitted by gzz on May 5, 2022 - 1:00pm.

1. The labor “shortage” are cheap businessmen unwilling to pay market wages.

2. The economy is booming to the point of overheating due to the covid stimulus bills being too large. Not ideal, but better than undershooting.

3. Nominal GDP and tax revenue are on

Submitted by gzz on May 5, 2022 - 2:10pm.

$575 for a run down 3/1 that is missing its siding and requires $4500 in meth repairs?

A good reminder that while Utah and other interior west markets like Phoenix, Denver, Bend, Sacramento, are cheaper than San Diego, they aren’t that much cheaper.

Here’s a much nicer 3/1 for $599 in city heights: 3087 38th St, San Diego, CA 92105.

Here’s a nice looking 2/2 in Lakeside for $575:
12516 Castle Court Dr, Lakeside, CA 92040

Seems easier to just move 10 miles to the suburbs than to a methlab house in SLC for the same price.

How much meth did they cook up there that they randomly dropped enough on the carpet to detect and need thousands to remove it?

Submitted by sdrealtor on May 5, 2022 - 4:27pm.

EconProf has been in Utah for a year. That’s sufficient time to have cooked several batches of meth. I’ll defer to him as our meth expert

Submitted by EconProf on May 5, 2022 - 7:34pm.

sdrealtor wrote:
EconProf has been in Utah for a year. That’s sufficient time to have cooked several batches of meth. I’ll defer to him as our meth expert

Stay classy, sdr.

Submitted by sdrealtor on May 6, 2022 - 8:04am.

EconProf wrote:
sdrealtor wrote:
EconProf has been in Utah for a year. That’s sufficient time to have cooked several batches of meth. I’ll defer to him as our meth expert

Stay classy, sdr.

OK WW. Let's role tape on some data. Top emerging markets in America per WSJ. Utah seems to be underperforming. Give you one guess where 20% of the top 10 and top 50 markets are? Hint: Utah did not have a single entry in the top 50. Arizona did have one but it was Yuma so basically Baja California

https://www.wsj.com/articles/affordabili...

Submitted by sdduuuude on May 10, 2022 - 2:35pm.

gzz wrote:
1. The labor “shortage” are cheap businessmen unwilling to pay market wages.

An increase in labor cost is devastating to a business plan because it can force a business owner to raise prices so much that their own business becomes no longer viable. It is a frightening prospect.

I believe this phenomenon - how higher wages force labor-heavy business into pricing themselves out of the market - is why labor shortages can turn to job shortages so quickly.

To call them "cheap" is very unfair and demonstrates a lack of understanding of what a business owner has to deal with..

Submitted by gzz on May 10, 2022 - 4:21pm.

Employers too often have an attitude of entitlement to cheap labor, and we Americans excessively valorize “job creators” like they are providing a gratuitous service.

People think when they charge higher prices it is because of the merit of their labor, product or service but when someone else raises prices it is unfair inflation.

Over the past 45 years corporate profits have taken a larger share of GDP and labor a small share. I haven’t seen the numbers yet, but if employers are making less because of rising wages, I think that’s great.

Submitted by XBoxBoy on May 10, 2022 - 4:54pm.

sdduuuude wrote:

An increase in labor cost is devastating to a business plan because it can force a business owner to raise prices so much that their own business becomes no longer viable. It is a frightening prospect.

If a business is no longer viable because market rate for wages rise that's not something to cry about. That's called capitalism. The constant replacement of existing businesses with businesses that are more capable of meeting the market's needs is a strength of market based economies.

sdduuuude wrote:

To call them "cheap" is very unfair and demonstrates a lack of understanding of what a business owner has to deal with..

As a former business owner, I don't agree. If market rates for wages rise, a business owner needs to pay them and/or find other ways to maintain employee loyalty. Not whine to the media about how they can't find employees. And given how incomes for the wealthiest part of our population have risen so much and how rank and file workers have lagged behind, I suggest you rethink where you put your sympathies.

Submitted by sdduuuude on May 11, 2022 - 9:49am.

XBoxBoy wrote:
sdduuuude wrote:

An increase in labor cost is devastating to a business plan because it can force a business owner to raise prices so much that their own business becomes no longer viable. It is a frightening prospect.

If a business is no longer viable because market rate for wages rise that's not something to cry about. That's called capitalism. The constant replacement of existing businesses with businesses that are more capable of meeting the market's needs is a strength of market based economies.

sdduuuude wrote:

To call them "cheap" is very unfair and demonstrates a lack of understanding of what a business owner has to deal with..

As a former business owner, I don't agree. If market rates for wages rise, a business owner needs to pay them and/or find other ways to maintain employee loyalty. Not whine to the media about how they can't find employees. And given how incomes for the wealthiest part of our population have risen so much and how rank and file workers have lagged behind, I suggest you rethink where you put your sympathies.

"Sympathies" is an odd term. It isn't a matter of sympathy, just an understanding that business owners are not being "cheap" any more than the laborers are being "greedy". Both pushing as hard as they can for their own best interests.

Business owners aren't the government - they can't just print money and hand it out. It has to be given to them by someone they help in some way.

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