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Friday Thoughts

I hope that you’re doing well and had a great Easter weekend. Spring promises to be here, but the chill early this week has me wondering. This is our kids spring break, so while you’re reading this, we’re in the upstate of South Carolina doing some camping, hiking, and history tours. While we’re hiking Jones Gap, I’ll be thankful that the cooler weather has hung around. 

I’ve written previously about how I think that the Federal Reserve has gotten things wrong by keeping interest rates too low for too long. I think it’s encouraged excess risk taking in many parts of the economy. But, there are so many unknowns, it could take years before we see the implications. 

There are times when I’ve been wrong (more than I want to admit). One of the things I pride myself in is always challenging my assumptions about things. I like to “live and learn”, if you will. 

Over the last few weeks, I’ve come to realize that I think I’ve been thinking wrong about a very important factor in the “next normal” for our economy. And, I think many policy makers and business leaders are thinking wrong about it, too. The issue is about the return to office versus work from home debate.

As someone who has been in my office nearly every work day through the pandemic, I had considered many of those who were arguing to continue to work from home as taking advantage of the situation. I may have even had some thoughts that they were being lazy. 

Then a few weeks ago, I was talking to a friend and client who was lamenting having to go back into the office for the first time in nearly two years. She is an executive level engineer for a manufacturer, and far from lazy or the type to take advantage of a situation. I asked her to tell me more about why she didn’t want to go back to the office full time. For her, it was about the freedom it gave her to run her life, while still getting her work done. 

She went on to explain that she felt that she is getting just as much, maybe even more, work done while at home. She may be on a call or in a zoom meeting as early as 6:30 in the morning or as late as 8 or 9 at night at home. But, she could be doing laundry in the afternoon, or going to pick her son and daughter up from school. 

It made me realize that the work from home movement is catching up to a lot of what attracted me to being a business owner, myself. I love the flexibility of my day, as long as the daily work gets done. 

Unfortunately, many business leaders are still thinking like I had been about work from home. The website goodhire.com recently completed a survey of 3,500 managers. They found that 60% of all managers either strongly agreed or agreed that a full-time return to office mandate is coming. When asked what would happen to this who refused, 77% of the managers said that severe consequences would occur, such as firing, pay cuts, or loss of benefits. 

Here’s the problem with that thinking - it’s slamming up against another tectonic shift in employment trends. The Baby Boomers are retiring in increasing numbers, causing a shrinking work force. 

The first of the Baby Boomer generation turned 65 in 2011, while the last of the generation turns 65 in 2029. So, the largest generation in the US had been heading toward retirement age before the COVID pandemic hit. The pandemic made the issue that much worse. 

For decades, we’ve had a large work force and there has been more unemployed Americans than job openings. Employers had their pick of employees. That changed in 2018. That was when the number of job openings surpassed the number of people looking for work, according to the US Bureau of Labor Statistics. The numbers briefly flipped in March of 2020, as businesses were shuttered. But, the trend resumed quickly and by May of 2021 the number of job openings again was surpassed by unemployed. Since then, the numbers have become even more divergent. source: https://fred.stlouisfed.org/graph/?g=OnPM

What does this mean to us? I think the jury is still out. If you are an employer or manager, I think that you will need to be aware of the desire for flexibility of the work situation for your employees. For some, that’s not an option. The guys that come fix your heating and air conditioning can’t work from home. The medical community must be at the office or hospital. My fear is that those industries, which have already been battling for employees, will be having to fight even harder to get good employees. This could lead to even more wage inflation. 

If you have a young person in your life, I’d be helping them consider training for a skilled job, as those jobs will have to pay a premium wage to compete with the “flexible” jobs. 

This shift will likely have an impact in real estate, as jobs will require less and less to be in a large corporate office. Perhaps smaller office centers, spread throughout the country, will be more attractive. Homes will need to have dedicated home office space. 

There is also a likely effect on things like travel. If 30-40% of the office employees in the Metro Atlanta area don’t have to commute to the office on any given day, imagine the decrease in traffic. But, what about the decrease in gas tax revenue? 

It’s still very early in this trend shift. I don’t expect all office employees to be working from home for ever, but I do think the working flexibility genie is out of the bottle and not going back in. Those who learn to adapt to it, in a way that make employees happy, will win the employee race. 

I hope that you have a great weekend and get out to enjoy the spring weather. The heat of the summer will be here soon.

The views stated in this letter are not necessarily the opinion of First Allied Securities, Inc. and should not be construed directly or indirectly as an offer to buy or sell any securities mentioned herein.  Due to volatility within the markets mentioned, opinions are subject to change without notice. Information is based on sources believed to be reliable; however, their accuracy or completeness cannot be guaranteed.  Past performance does not guarantee future results.