The Muddy Boot Economy


June 4, 2019


Dear Brick Street Folks:


That’s what we are calling it.


The muddy boot economy.


If you have a pair of boots, you can get a job. If you are willing to get mud on those boots, you can work 75 hours a week.


This is an unparalleled time for labor in the 21st Century. The national unemployment rate is 3.3%, and in my home county in NC it is 2.6%. Companies all over the country are desperate for labor of any kind. Construction has been unleashed with continued low interest rates and as Americans grow older, the need for younger workers continues to put the squeeze on employers looking for help.


High school graduates are easily offered jobs. Starting salaries in traditionally entry level workers in food service, lawn maintenance, home improvement, camp counselors, and entertainment (ball parks, movie theatres, etc.) are well above stated minimum wages. Entry level wages at permanent positions are easily in the $14 per hour range and often carry 90 day signing bonuses.


For now, the days of the unemployment option with a generous benefit is over. Working is being rewarded. And working with your hands is really being rewarded.


Low unemployment and productivity is having enormous societal benefits that are carrying great influence on our economy… especially in the hourly wage category.


Over the last two decades many companies pared back benefits due to the great recession, the housing collapse and overall difficult business conditions. Silicon Valley was the exception. Companies like Apple, Google, Amazon and Facebook all offered amazing benefit packages and large salaries in order to get talented and educated young workers to relocate into a very small area of the country where housing, living and transportation costs required high wages to live.


Vast parts of America were going the opposite way in 2007-2014.


As with all business cycles, things have definitely changed. The under employed of the last ten years are now in over demand. Companies are looking to employ people in what is commonly referred to as the “trades”.


Plumbing, electrical, concrete, drywall, carpentry, roofing, security, transportation, painting, cleaning, road building, landscaping, masonry… all of these industries are looking for skilled and unskilled people to train and hire. But so is the service industry, with restaurants, hospitals, schools, automotive and home health care all looking for entry level people who can be trained and in some cases certified to work.


What does this situation have to do with the stock and bond markets?


A lot.


People drive profits. People make companies perform. People solve problems. People create business relationships.


American companies all seem to have a people problem. And those companies that are publically traded are very open and suspect to difficulties that arise from basic people problems.


Problems like long training cycles due to lack of basic entry level preparation… reading, writing and some technical skills required to run a computerized program. We’re talking a touch screen order entry system.


Problems like time management… keeping workers on the job by being flexible with work schedules due to family dynamics, health or housing or transportation issues. Companies today are ramping up their human resources departments in order to accommodate workers in ways that are causing most companies to spend dollars today just to try to retain workers tomorrow.

Problems like costs. People are the most expensive line item on the profit and loss statement… and that’s not a bad thing! Technology has threatened employing people for centuries now, and here we are, in the most technologically advanced time in our history, and we are still looking for more people to work. But as people get hired, trained and retained, those increases in people costs have to go somewhere. Lower profits, reduced input costs, or simply reduced expenses can only last so long. Higher prices to the customer have to show up some time.


The market rotation… money moving in and out of specific companies… is well underway. Companies that can initially hire less skilled labor have been attracting workers. Higher wages benefit programs, accommodative hiring practices and less unemployment benefits available have fueled an opportunity for workers and employers to find common ground. This has been going on for about 24 months now.


This is new territory for the public markets.


The high tech companies that have traded at very high prices over the last several years are feeling the pinch of having to finally produce profits that validate their share prices. The expensive people costs are affecting cash flows making a serious dent in their expenses as some of the less tech heavy companies are feeling the positive impact of a terrific opportunity to hire labor these last two years.


Most of this labor has gone to small and medium size companies. Most of us don’t know the names of these companies because they are privately held companies that we never hear about. They employ 15 to 150 employees and tend to be locally owned. The money generated from these companies tends to stay in the communities where the labor is performed. That is, the workers spend it close to home buying groceries, meals, clothes, vehicles and basic household items along with the necessary things that go with those items like tires, insurance, laundry detergent and entertainment.


The Dow Jones and S&P 500 are chocked full of high tech companies: Apple, Microsoft, Cisco, Amazon, Google, Facebook, Intel and Netflix. These companies have all seen the tops come off of their share prices.


The places where mud is accepted on your boots are doing better and better… Tractor Supply, McDonalds, Waste Management, Johnson Controls, Republic Industries and Dollar General.


We know this is a simplistic commentary, as we haven’t mentioned the Federal Reserve, the 30 year T-Bond yield, the trade wars or even Washington D.C.


Yes, all of those silos contain stinky silage that creates problems in today’s public markets.


The economic shift to basic and entry level employment from several years of unemployment for hourly workers is refreshing and dynamic. It is a fabulous sign of a long runway for regular folks who want to make an honest living. Employers will figure out the current labor shortage that has been created by the recent vacuum. Lateral movement among employees is already beginning as many employees have been in the marketplace long enough now to be attractive to other employers. And the employees are feeling confident enough to make a move that the new job will be better and last longer.


Finally, we surely watch the market indices daily. And interest rates have continued to fall. Negotiations with our global trading partners are very important. The media war in Washington is loud and obnoxious. But when your roof leaks, your toilet floods your basement, or the air conditioning in your car quits you probably won’t be asking the person helping you if she thinks the Fed is going to raise interest rates.


These are very good times. Adjustments in the public markets are just that… adjustments. The markets are functionally solid and our economic footing is sound.


A bit muddy, but sound.


Providing advice to build and maintain wealth.


Matthew C. Burril