How to not get rolled by the ‘rolling recession’

Manufacturers’ warehouses were bursting with unsold inventory. Industrial production started shutting down. Yet labor was somehow in short supply and workers were demanding higher wages.

This was the scene as recession took hold of the American economy in late 1960, while the nation – and probably a few corpses in Chicago – decided whether John F. Kennedy or Richard Nixon would be the next president. And the same economic dynamics might be on replay right now.

In case you were wondering what they were arguing about. Credit: AP

“The farmers are the number one market for the automobile industry of the United States,” the Massachusetts senator noted, explaining the Democratic Party’s plan for government intervention in agricultural markets. “The automobile industry is the number one market for steel. So if the farmers’ economy continues to decline as sharply as it has in recent years, then I think you would have a recession in the rest of the country.”

And the concept of the “rolling recession” entered popular culture.

Who’s losing

Overall, hiring is down all over the world, according to professional networking platform LinkedIn. From January 2022 to January 2023, domestic hiring dropped 23%, making the U.S. one of the hardest-hit countries on earth.

Whether or not we’re in or near a recession is almost irrelevant when considering employment in 2023. LinkedIn posts mentioning “recession” rose 7.7% in January, while those mentioning “layoff” rose 37.7%. Job losses might not be in the official statistics yet, but they’re definitely on employees’ minds.

LinkedIn won’t put it this way but … You need Indeed. Indeed you do. Credit: LinkedIn

America is losing jobs, but not all over and not all at once. While you might think that Technology is where jobs are disappearing, the data do not bear that out. LinkedIn lumps Technology in with Information and Media and calls that a dead heat. Despite some recent high-profile bloodletting at major firms, the job market in that sector is right about where it was a year ago. The same could be said for Entertainment Providers, Professional Services, Retail and Financial Services.

The big job losses appear to be in the public sector, specifically Government Administration and Education. Consumer Services workers are also taking the hit.

Who’s winning

Despite all the gloom, the U.S. economy is still short 3 million workers, according to LinkedIn. It’s just that those open positions are not spread evenly across industries. The job growth seems to be concentrated in three sectors: Hospitality, Energy and Health Care.

And don’t feel too despondent about the tech workers. While finding another job in a pure-play IT company is challenging right now, Financial Services, Manufacturing and Professional Services firms are gobbling up all this talent. Also, there’s a word in Silicon Valley that’s a near-perfect synonym for “laid-off tech worker”. That word is “founder”. You can expect as many startups this year as venture capitalists have an appetite for.

Interestingly, the job market in Real Estate is also considered to be more or less in balance. That contrasts sharply with housing prices, which have been dropping every month since June 2022. A recent article in The Economist points out that, while housing prices are sensitive to interest rates – which the Federal Reserve has been jacking up over the past year – housing demand is constant. As long as people are starting families, having more children and eventually seeing those children off, they will need to buy starter homes, trade up and trade down. Unit sales have been much steadier than prices.

Interlude, 1960

As retiring chief executive Dwight Eisenhower’s vice president, Nixon’s job that October night was to trumpet the administration’s economic record which – up until a few months earlier – would have been a very easy sell.

“Is it true that this Administration, as Senator Kennedy has charged, has been an Administration of retreat, of defeat, of stagnation?” the California Republican [sic] asked rhetorically. “Well, we have a comparison that we can make. We have the record of the Truman Administration of seven and a half years and the seven and a half years of the Eisenhower Administration. When we compare these two records … we find that America has been moving ahead.”

The case could be made, and Nixon pointed to a set of facts to back his claim. But he was looking to history and not what was going on in America at that moment. While the last published reading of economic growth was still reasonably healthy, it was definitely slowing down. In that last quarter of 1960, gross domestic product would grow at less than 1% annualized. That data, of course, wouldn’t be available until the following quarter. And in that first quarter of 1961, the economy contracted.

The last unemployment reading the vice president saw before the debates showed 5.5% of job-seeking Americans out of work. That seems high by today’s standards – buttressed as they are employment platforms, online applications, side-gig apps and other technological advancements – that was a decent reading back then. This is especially true when you consider that the recession started half a year earlier, according to the National Bureau of Economic Research. Unemployment climbed from there, but it didn’t hit its 7.1% peak until May 1961 – three months after the recession ended.

Who’s the boss?

But this is an investors’ newsletter, not a job hunters’. The reason for going into this detail is to get a feel for the effect of employment on the economy and where the economy is going. And the evidence suggests that, overall, U.S. production will continue to grow, but not everywhere or all at once. It will likely be very sector-specific for a while and, if you want to know where the revenue is coming from, look at who’s hiring. Right now, that’s a short list: hotels, oil companies and hospitals.

But at a macro level, it’s also important to understand, as candidate Kennedy did, that these sectors have secondary effects on one another. To take one example: If Consumer Services companies – which includes airlines and restaurant chains – aren’t hiring, that doesn’t bode well for hotels long-term.

And no industry can ignore unemployment in the aggregate. If joblessness starts rising, there might be less demand for real estate, oil and gas, banking, technology and manufacturing. Demand would endure, though, for consumer staples, health care and utilities.

The silver lining to higher unemployment, though, is that it will cause the Federal Reserve to stop raising interest rates. If that doesn’t happen, it would lead to a whole different set of outcomes. Real estate and technology would probably still suffer, though not as much. Manufacturers, materials extractors and big-ticket consumer durables might have a moment of expansion because of the resurgence in demand, but the high-interest rates would mute that. Banks, of course, love high interest rates and would do well.

So, net-net, will this rolling recession result in more jobs, fewer jobs or just an ephemeral flow of headlines? Nobody knows for sure, but you can know that Smith Anglin will continue to remain focused on the effect of employment on the economy as things unfold.