Investment Insights Newsletter

October Commentary
MoonPies, Chinese Takeout, and The Labor Market

Recently, the Bureau of Labor Statistics (BLS) announced the U.S. economy created 150,000 net new payroll jobs during the month of October. Of these new jobs, less than 100,000 were in the private sector. Neither one of these observations was dreadful but both were less than expected, with the private payroll number being especially underwhelming. I would submit they were the economic equivalent of a MoonPie when you were hoping for a fresh pain au chocolat. For its part, the headline unemployment rate in the U.S. inched up to 3.9% last month. Though still paltry by historical standards (the average is 5.7% since 1948), the rate has been slowly moving higher from the 50-year low of 3.4% seen at the beginning of 2023. Like the payroll numbers, the 3.9% datapoint wasn’t awful, but I would liken it to the equivalent of drinking an RC Cola when you were hoping for a cup of Ethiopian Yirgacheffe coffee. In the 1950s, the combination of a MoonPie and RC Cola was known as the “working man’s lunch” and could be bought together for a mere 10 cents. That’s right, during the era when a gallon of gas cost just $0.27, this duo of edibles became so popular, it earned its own song, “Gimme an RC Cola and a MoonPie,” performed by radio’s tallest cowboy, Bill Lister. Honestly, I always remembered MoonPies being much larger than they are now; perhaps that is because I was a much smaller version of myself when I last ate one. Today, it appears just one of these marshmallow, graham, and chocolate, cellophane wrapped snacks isn’t enough lunch for a first-grader, let alone enough for a working man. Humor me and pretend you are enjoying an RC Cola and a MoonPie while I unwrap some recent labor data and possible outcomes.

Up a Tree

I’m going to climb out on a long limb here and predict the headline unemployment rate is going to continue to move higher. Sure, there seemingly appears to be a gazillion job openings available, but when all is said and done, more folks are going to be without what most would call a traditional occupation or vocation. In my estimation, the reason is fairly simple: The gig economy is going to slow down meaningfully. As I have written about previously, Pew Research estimates some 4-5 million Americans participate in the gig economy as their primary source of income and millions more participate to supplement their monetary needs. For those of you who have forgotten what a gig economy means: It is a labor market that relies heavily on temporary and part-time positions filled by independent contractors and freelancers rather than full-time permanent employees—think Uber, Lyft, DoorDash, Instacart, Shipt, etc. It can be a pretty sweet deal for many modestly skilled, and perhaps former hourly, workers. Think about it. Do you want to have a set schedule making, say, $12-15/hour, or would you rather set your own schedule, and potentially make more money, while making some food deliveries or driving folks around town?

You might already be thinking I’ve lost my marbles by saying the gig economy will face challenges in the near future, and maybe rightfully so. Will people really stop taking an Uber or Lyft? Will we quit ordering food delivery through Grubhub or DoorDash? Don’t misunderstand me, there is no doubt people will continue to use these apps. I’m just increasingly convinced we won’t use them as much. After a few years of excruciatingly high inflation, substantially higher interest rates, and a much higher cost of living, folks are going to be more mindful about cutting what many will deem unnecessary expenditures out of their budgets. As a result, the willingness to pay up for gig app convenience will be on the chopping block in a lot of households around the country. I know it is in mine and here is the real-life example that led me to this decision. There are a couple of Chinese restaurants in my ZIP code that extend delivery to my neighborhood. While I think them to be virtually indistinguishable, my wife prefers one over the other due to her more discerning palate. In the spirit of full disclosure, I tend to be a quantity over quality guy when it comes to many of my foodstuff choices, and Chinese takeout is no exception. Because of my “more is always better” tendencies, we err on the side of overindulging every time we order Chinese food. I like to justify this decision by convincing myself I will take the leftovers to the office for lunch. Regardless, a typical order usually sets us back right at $44 with tax, prior to tipping the delivery driver. While this is not an exorbitant sum of money, it is enough to warrant attention in my household. What do you suppose this same order would cost if ordering through DoorDash? Drum roll please… $68.66 before any cash tip is offered to the delivery driver! Breaking down the DoorDash total we get $54.85 for food, a $0.49 delivery fee, and $13.32 for other fees and local taxes. There is nothing covert or mysterious about this comparison, and from a business standpoint it makes perfect sense. DoorDash needs to make money from the transaction so they can remain in business, ergo, a $10.85 markup on the food items and the addition of some nondescript and nebulous fees. So, in this instance alone I can save nearly $25 on our typical order simply by calling the restaurant and not using a gig economy app. If you aren’t convinced and need another example, compare buying a pizza using the Papa John’s app versus DoorDash. Or try Uber Eats or Grubhub if you like, the results will be similar. While the differences likely won’t be as great as my Chinese restaurant example, they will be more costly, nonetheless. Here is the point, aside from confessing I personify the adage “your eyes are bigger than your stomach,” I am convinced that in 2024 consumers will be looking for easy ways to reduce expenses. Household budgets will continue to be stretched due to inflation and the higher cost of everything around us. My Chinese takeout illustration points to an example of low-hanging fruit I believe will be plucked next year by lots of consumers. Oh sure, the argument can be made that if enough people decide to order directly from the restaurant for delivery, the workers who were “DoorDashing” or “Uber Eating” to earn a living could just go work there instead. Perhaps, but wouldn’t that defeat the purpose for the gig worker? After all, the most oft-cited benefit and appeal of participating in the gig economy is the flexibility it affords.

Ignorance is Bliss?

Naively, I always assumed when using one of these gig apps, I was paying just a smidgen extra for the convenience, or more stupidly, the restaurant was kicking back something to the gig company for the convenience of using its delivery app. However, and this is completely my fault, I didn’t fully appreciate exactly how much extra it was costing me until just recently. Full credit to my eldest son, an accountant no less, for helping me see the error of my ways. As a result, I haven’t ordered anything using a gig app in several months and don’t know if I ever will again. Clearly, I am just one person, but what if there are millions of people like me who scale back on their unnecessary or irrational expenditures? Perhaps we could call it an awakening to our collective laziness as measured in dollars and cents? Let’s just say our newfound awareness and discipline could have a pretty significant impact on the labor markets.

Also, in October, the Labor Force Participation Rate jumped up a full percentage point to nearly 48% for workers over the age of 25 without a high school diploma. More people working, that’s a good thing, right? Although a lot of these newcomers into the labor workforce found jobs, many did not, and the unemployment rate for this segment rose to 5.8%. At the same time, the unemployment rate for workers designated “high school graduates, no college” came in at 4.0%, signaling both groups are higher than the headline unemployment rate of 3.9%. By these measures it’s fair to say the unemployment rate is going up steadily within the unskilled and semiskilled workforce. So, if weakness already exists in this labor segment, what will happen if there aren’t enough gig jobs to help the non-traditional labor force pay their bills? That’s right, a lot of these workers who probably aren’t tracked or otherwise accounted for in the current labor statistics will have no choice but to reenter, or enter for the first time, the official workforce pool. Many of these former gig workers will find jobs, but many will not. This alone could cause the headline unemployment rate to continue its trek higher and ultimately affect the Fed’s decision-making process in 2024. If this scenario plays out, the question won’t be whether or not to cut the overnight rate, it may very well be how many times to cut if the unemployment rate continues to escalate. How much higher does it need to go before they reverse course? While I don’t own a crystal ball, I would surmise somewhere in the mid-4% range. Remember, the Fed wants/needs to see weaker employment data (higher unemployment) as a sign to stop the barrage of interest rate hikes it has levied over the last 18 months.

Great Minds Think Alike

If you are like me and don’t like higher inflation, higher interest rates on borrowing and credit, and the overall higher cost of living, let me share how my household is looking to save a few dollars and possibly have an impact on the economy. We have significantly slowed the pace of using our phones and tablets to get stuff delivered to the front door. We have made the decision to not order takeout through one of the many gig apps available, to do our own grocery shopping, and because we live in an area with no mass transit, we have made the decision to drive to our destination instead of hailing an Uber or Lyft when feasible. To some that might sound silly, frivolous, and frugal, but I’m convinced our personal decisions may not be so off-the-wall and could prove to be a microcosm for many U.S. consumers in 2024. Not only will we be saving some hard-earned money, but collectively we might begin contributing to higher levels of the officially unemployed, which in this case is a good thing—at least it is according to the Fed.

And lastly, instead of taking leftovers from a Chinese take-out order for lunch, maybe I’ll start packing an RC Cola and a MoonPie. While it never will be considered a nutritious meal, it may very well be healthier than my usual order of General Tso’s chicken with lo mein or fried rice. Better yet, people might view me as the 1950s song suggests, a “working man.” I would argue there is a certain level of pride and bravado to that these days.

Until next month—

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Past Editions

September 2023 Commentary

August 2023 Commentary

July 2023 Commentary

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