Excluding this awful pandemic, we think most market observers would cite inflation as the greatest risk to the economy and markets. More specifically, the risk that inflation remains high or moves higher, forcing the Fed to tighten monetary policy quicker than it wants, putting the economy and bull market in jeopardy. We also think most market observers would cite the still shockingly low labor force participation rate – and the still missing (estimated) 3+ million jobs relative to where we were pre-pandemic – as the biggest conundrum of the economic recovery. 

Setting aside the possible causes for the labor market shortfall, that risk and conundrum are intertwined, with inflation being pushed along by both higher wages (as employers compete for employees) and stressed supply chains (stressed, at least somewhat, due to a lack of available workers). Inflation could ease, all things being equal, as more Americans return to the workforce. And, as the economy continues to reopen, consumers could spend more on services and less on goods, further destressing supply chains, and further mitigating inflation. 

We have gotten some good news of late as it concerns Americans coming back to – and not leaving – the workforce. The labor force participation rate ticked up ever so slightly to a post-pandemic high of 61.8% in November (see chart) and the number of Americans quitting their jobs (as a percentage of the workforce) dropped from a record 3% in September to 2.8% in October, per the latest Job Openings and Labor Turnover Survey. We think the labor market moving in the right direction is a big deal as it concerns inflation and monetary policy in 2022. It’s not much, but we’ll take it.

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The views expressed are those of Brinker Capital and are not intended as investment advice or recommendation. For informational purposes only. Brinker Capital Investments, LLC, a registered investment advisor. 3086-BCI-12/13/21