Here's a narrative you don't typically see: is it possible that blue-collar workers are outperforming white-collar workers right now?
This isn't just some drummed-up media story. It's already been enough to prompt Brandt Montour at Barclays to downgrade shares of Marriott--yes, Marriott, the hotel chain--heading into 2023. Why? Because he sees "relatively more blue collar job stability vs. white collar jobs." Put differently, the labor expense of running these chains is likely to go up at just the time that the most profitable, high-end customer base is looking wobbly. (You can watch his interview on Power Lunch yesterday here.)
"[These] companies are still having trouble re-staffing post-COVID," Montour wrote in his downgrade of the shares to equal-weight yesterday. "We have to expect they will look to avoid letting go of employees in blue-collar type positions, only to have to try and hire them back perhaps 6-12 months later."
Meanwhile, the high-end customer base that fuels profitability at chains like Marriott has slowed more than expected this fall. "Spending on luxury goods decelerated more materially than discount-focused goods, wage growth within middle to lower income segments [is] outpacing higher income segments, low income job postings [are] gaining share from high income postings, and [we have] accelerating layoffs within the high-paying technology sector," Montour wrote.
And that's exactly what Julia Pollak of ZipRecruiter told us last week as well. Six of the seven industries with the biggest drops in online job postings since June are "white collar," including technology (-35%), business, science, legal, finance and insurance, and engineering (-29%). Meanwhile, the only industry seeing a double-digit increase since then is "personal care," a blue-collar field up 24%.
"The recent decline in job seeker sentiment has been steepest among the most-educated workers," Pollak also points out. "Usually, it's the least educated workers who are hardest hit in a recession, so this is unusual."
But it's not like times are great for lower-income workers, obviously, because inflation until recently has outpaced their wage gains. As a result, this class with better job security would probably rather see a more aggressive Federal Reserve vis-à-vis inflation, versus higher-income earners who are more anxious from falling stock prices, more worried about their job security, and less affected by inflation.
Perhaps the fact that markets are bracing for a broader recession is one reason why we haven't seen more tension between these two groups for now. It's ironic that the very outperformance of lower-income workers is the same reason the Fed won't slam on the brakes on right hikes right now, which could end up tipping us into a worse recession down the road. Enjoy it while it lasts, in other words.
See you at 1 p.m!
Kelly
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