Clocking Out at the Top

Fundstrat recently pointed out that the labor-force participation rate has been gradually declining all year and just fell to 61.4% — the lowest level since February 2021.

What caught my attention, though, is who is driving the decline: workers aged 55 and older. Their participation rate is now the lowest since March 2005.

My first thought? Yeah…they're retiring.

Markets have been strong; their retirement account balances look pretty good; many are inheriting money; therefore, their financial plans indicate they don't need to keep working. That's not necessarily an economic warning sign.

Now, there's an obvious historical comparison worth acknowledging. The last time participation among the 55+ crowd fell to these levels was before the economic struggles that began in 2007.

Does that mean we're headed for a repeat? No.

History is useful, but it doesn't have to repeat itself — especially when the underlying reasons may be completely different. Instead of looking at the participation rate in isolation, I'm more interested in whether we're seeing another form of rotation happening beneath the surface.

Bull markets are built on rotation.

Money rotates from sector to sector, small caps to large caps, bonds to commodities, and so on.

Maybe we're seeing something similar happen in the labor market: a rotation out of higher-cost, 55+ workers and into younger workers, automation, and AI-enabled jobs. Younger workers can mean lower labor costs.

Automation and AI can mean higher productivity with fewer employees.

Both can lead to lower costs, which can create higher margins, which can drive higher earnings — and higher earnings have historically been pretty good for stock prices. Maybe this isn't a warning about what's leaving the workforce. Maybe the more interesting story is what's replacing it and whether or not that's a net positive for the economy, which allows this bull market to keep raging on.

Process over predictions.

Shean