Jobs report indicates ‘we’re seeing the end of the great vacation’: Stanford professor

Stanford University Business Professor David Dodson joins Yahoo Finance Live to discuss younger workers reentering the workforce, the March jobs report numbers, inflation, and the Fed's interest rate hike schedule.

Video Transcript

- Let's continue to talk with David Dodson. He's a Stanford University business professor. Professor, it's good to see you. So let's give you a blank slate on the jobs report. 11 straight months of 400,000-plus jobs created. Unemployment goes down to 3.6%. A lot of good news to take in there. Wages increase. What stood out to you most? DAVID DODSON: You know what we're seeing? We're seeing the end of the Great Vacation. We thought it was the Great Resignation, but it's really been the Great Vacation. I mean, what happened-- and I think it's pretty clear looking back on the data-- is that a lot of money got sent out in people's mailboxes. Some people were sent home because of COVID. It was inconvenient to work. And, by the way, the stock market was going up. So everybody was getting wealthier and wealthier. Well, all that's reversed. And if you look in the last hundred days, what's happened is, A, people have less money. They have less wealth because the stock market's come down. Prices are going up. That's a pretty big gap. And, by the way, I think people are finding that maybe retirement isn't what they cut it out-- what it cut out to be. I mean, I think there's a fair number of people that I've heard, anecdotally, that are saying, I've been kind of sitting at home and maybe I want to go back. And then here is sort of the magic part of it, in the end of the Great Vacation, is that now somebody can get a phone call, and they can say, you know what? Will you come back for 20 hours a week and you can work in your pajamas in your living room? Like, yeah, that's not a bad idea. So I think we're going to see this from the retirees coming back to work. And, by the way, we know that. In fact, the stats are that 3% of retirees are returning back to work, which may not seem like a big number. It's actually a very large number. It's the largest number we've seen, certainly since the pandemic started. And then younger people are realizing that they've spent all the money that they got for free from the government and maybe it's time to stop sitting on an inner tube and drink beer and go get a job. And that's what we're seeing in the end of the Great Vacation. - You know, that's a tough life to give up, what you just described there. - It's quite an image, right? - But as you're watching the economy sort of start to stabilize, seeing the job market stabilize, what about some of the pressure that we're still seeing with inflation? When is that going to really catch up with what we're seeing with wage growth right now? DAVID DODSON: OK. This is a really, really interesting issue, because, right now, what you've got is you've got 1.8 job openings for every person who's applying for a job. That's a huge mismatch. And the way that employers are attracting people is, among other things, higher wages. Now as the end of the Great Vacation-- as the Great Vacation ends, and the workforce starts to increase and those jobs get filled, the question is, is that gap going to close? And it is going to close enough to where supply and demand in the labor force start to even out. And then wages will level out. And I believe that prices will level out, because there's two things driving prices right now-- consumer prices. One, of course, is commodities, which are out of control. And that has a lot to do with what's happening, obviously, in Ukraine. And the other are wages. If you stabilize the wage rate, inflation's going to come down or inflation's going to hold. And what's interesting is if you look at-- there's interesting work at University of Michigan that looks out on what people's expectations are about inflation going forward. And that's very important because it affects consumer behavior today. And people do not expect the current inflation to last much longer. They expect it to last about a year. - Dave, I want to go back to something that you mentioned a moment ago with regard to the stock market had gone up, so people had gotten richer. That's to assume that everybody is invested. But for people who are looking at equities right now or looking at other areas in the market, whether that be cryptocurrency that they want to get involved with, where they're trying to diversify their portfolio, where should they be entering at? Where would you be positioning your portfolio, even in a time of volatility like this? DAVID DODSON: Yeah. It's tough right now, right, because interest rates have been so low. So there used to be, historically, this really nice trade-off between bonds and stocks to keep it simple. And you haven't-- there's been no yield in bonds. And, of course, there's no yield in cash. So the only place to go is equity markets. And everybody's fleeing to the equity markets. Now, the last hundred days have not been too pleasant in the equity markets. So people are looking for where else to go. And there aren't very many places to go, except we do know this. We know that interest rates are going to be coming up and they're going to be staying up. We've had this unnatural reduction in interest rates for a long period of time, which has been COVID and politically-related. And that's going to end. So, you know, the bond market is going to start to get interesting soon. - I'm still stuck on that-- DAVID DODSON: And by the way, I'm not talking about trading bonds. I'm talking about long-term holds and taking advantage of the yield. - Right. I'm still on the inner tube drinking the beer, Professor. But I want to talk about the yield. DAVID DODSON: You can tell I have kids, right? - As do I. But we've never had a recession without an inversion of the yield curve. And we have seen flirtations with that throughout the week. How significant is that? Do you believe a recession is coming? DAVID DODSON: Well, I think the Fed is sort of staring down the horns of a dilemma, if you will, because if they want to control inflation, those levers that they pull to control inflation, which is one of the two things that they're supposed to be working on-- the Fed is charged with inflation and full employment. If they start pulling on the levers to try to reduce inflation, that is going to accelerate the opportunity for a recession. And so I think it's a false choice to say it's either a recession or inflationary environment. I think what the Fed's job is to try to hold both of those levers and manage us through this process 'til we have two major stabilizations that have to happen. One is the labor market. So we've got the end of the Great Vacation and we've got end of COVID. By the way, in February-- and this is actually remarkable. End of February, 1.2 million people couldn't return to work because they were sick with COVID. It's down to 900,000. And 900,000's a big number, but it's down a lot. So that is going to stabilize. The second thing is what's going to happen with commodity prices, and, namely, energy prices. And, right now, it's anybody's guess what's going to happen as Europe moves away from Russian oil and Russian energy. The United States tries to fill that gap. Other people try to fill that gap. And whether that will eventually stable-- energy prices. And those are the two things that the Fed is going to have to be mindful of. - Indeed. Well, great getting your insights today. David Dodson at Stanford University, business professor, thank you so much.