This Is Who Sees A Cyclical Recovery

Labor Force Participation Rate Falls

Even though the unemployment rate fell 0.2% to 6.7%, this wasn’t a positive report because the labor force participation rate fell from 61.7% to 61.5%, which is a big decline. It’s down 1.9% from before the recession. It might never regain all its losses, but it should regain most of them if the recovery accelerates next spring. Demographics won’t be much different 18 months later.

On the other hand, industries have changed. The advent of technological advancement in the COVID-19 economy could keep some older folks out of the labor market. The prime age labor force participation rate fell 0.3% to 80.9%, which is 2.1% below where it was in February. The economy has 9.8 million fewer jobs because of the recession. 

And, the 6.7% unemployment rate puts lipstick on a pig to a certain extent. The labor market has improved quickly, but it’s not back to normal.

Average hourly wage growth was 0.3% and yearly wage growth was 4.4%. The work week length stayed at 34.8 hours, and weekly earnings growth was 5.9%. Normally in recessions, wage growth increases because of composition effects. That means low wage workers lose their jobs, which pushes up the average pay rate. 

This cycle is different because of the K-shaped recovery. Specifically, some industries can’t find enough workers and others are firing them left and right. Amazon (AMZN) is hiring everyone it can, but restaurants and movie theaters are struggling.

Shale Hasn’t Worked

Market narratives are usually true; they just go too far. For example, a company might be innovative, but once its stock rises over 1,000%, the optimism is over the top. The narrative on fracking is that it burns capital. That’s why energy has been in its worst downturn in 90 years. 

Fracking hurt all oil stocks because it increased supply, which hurt prices. Furthermore, it was bad for fracking companies specifically because of steep decline rates and faulty metrics. Firms invented the term EBITDAX, which excludes exploration expenses. As you can see from the chart below, shale oil and gas producers have burned through $342 billion since 2010.

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