Bank Of America's Latest Decoupling Strawman: Go Long Women
While Goldman Sachs' Jim O'Neill continues to push his theory for decoupling based on an extended developing world, which includes such countries as Nigeria and Iran, to drive global growth as per his recently launched BRIC replacement, the N-11, Bank of America's economics Ethan Harris and Neil Dutta, have taken a far more novel approach to finding "hidden" sources of pent up growth potential: women. Of course, neither dares to admit that the only real source of 'growth' is nothing less than previously unprecedented amounts of monetary stimulus in the form of endless free central bank liquidity. But in every bank's quest to find the missing link in the "virtuous circle" dynamo, we expect increasingly more ridiculous assumptions about what will manage to be a standalone driver for a 4%+ GDP growth for the US. In the meantime, the fact that the underlying "organic" economy, not to mention the stock market, would flounder absent trillions in cheap money supporting all asset prices continues to be resolutely ignored by everyone. Which merely confirms that the Fed will likely never hike rates again, as that would eliminate two years of what will soon amount to nearly $4 trillion in monetary stimulus in the US alone, which in turn represents roughly 25% of the stock market capitalization in the US alone. But going back to why Bank of America is now going long women, here is Harris' summary: "The wounds of the economic crisis will take years to heal. However, we expect female earnings to recover faster than male earnings. In many households, women already do most of the shopping. So, while we remain cautious on the trajectory for consumption, our sense is that women will increasingly drive consumer spending." At least BofA will have someone to blame it all on, when their latest ridiculous "economic" theory collapses in a pile of dust.
From the 'analysis'
- Women did not experience the severity of the labor market recession that men did. Men and women went into the recession with unemployment rates
at roughly the same level. But today, the unemployment rate for women is almost two full percentage points below men.
- For every two men that graduate from college, three women do. In fact, women earned over 50% of the Bachelor’s degrees in the last decade. Back in 1960, women were less than 40% of the undergraduates.
- As a result, the ongoing shift away from a manufacturing-based economy to a knowledge-based one should overwhelmingly help women. They make up the majority of the workforce in nine of the 10 occupations the Bureau of Labor Statistics predicts will add the most jobs over the next eight years.
- While a gender wage gap remains, it is closing: over the last five years, the real median income for women has risen roughly 1% at an annualized rate. For men, it has contracted 1.5% at an annual rate.
- Women are waiting longer than ever to get married and comprise 56% of the single-with-no-children households in the country. And, when you are single, you are significantly more likely to spend on yourself.
It gets better:
Companies that cater to women should do well
Yes, women make the bulk of household spending decisions as it is. But, their increasing earnings potential means stronger purchasing power relative to men. This secular, “long-on-women” theme should bode well for companies that cater specifically to women. Our equity analysts are already noticing the rebound of the female shopper in their companies and we expect these trends to continue.
Labor market recession disproportionately affected men
The labor market recession disproportionately affected adult males in the manufacturing and construction industry. Men account for roughly 90% of construction jobs and around 75% of manufacturing jobs. These jobs are generally low-skilled but high paying. And, the hallowing out of job opportunities in these industries implies that unemployment for men is increasingly structural in nature.
Consider that job losses in manufacturing and construction accounted for roughly 50% of the employment declines between 2008 and 2009, shedding a combined 3.987 million jobs. Yet, job openings in these two sectors account for less than 10% of the three-million plus job openings in the private sector as of October 2010 (Figure 16). We are looking at permanent job-loss in these male-dominated sectors. And, the retooling process for these displaced workers to garner skills relevant to the employer’s in today’s labor market will be measured in years.
By way of contrast, the magnitude of the job loss for women has not been nearly as severe. This is why the gap between the unemployment rate of women and men has never been as wide as it is today. The unemployment rate of women, at 8.9%, is almost two full percentage points below that of men (10.6%). Figure 17 shows the trend in this gap over the last 30 years. The unemployment rate of men typically rises above that of women immediately after the recession ends since men work in more cyclically-sensitive industries like manufacturing, construction and mining. Normally, the unemployment rates of two sexes converge as the cyclical dynamics of the labor market recovery kick-in.
However, with the gap as wide as it is and given the acute nature of the structural unemployment among men, it is likely to take longer than normal for this gap to narrow.
Women positioned well to fill the jobs of the 21st century Women are also uniquely positioned to fill the jobs in the sectors of the economy that will be demanding more labor. Figure 18 summarizes where the Bureau of Labor Statistics believes the jobs will be over the next ten years. Most of these sectors already employ women as a majority of their workforce. Sure, men will increasingly rotate into these sectors, but as we pointed out above the adjustment process will be slow.
The health industry is a perfect example. With the median baby boomer nearing retirement, health care is a rapidly growing industry. This is why it is not much of a surprise to see that the lone sector in the economy that managed to add to its staffing levels even through the recession was health care & social assistance. This is an occupation dominated by women, accounting for roughly 80% of the total workforce.
It is also generally accepted that the more educated the worker the more they can earn. This is particularly important in our increasingly knowledge-based economy. One study finds that the increase in individual earnings from an additional year of schooling is about 6-10%. And, the academic literature supports the idea that most of the increase in wage inequality over the last 30 years was due to increasing differences in wages for workers with different levels of education. This is a secular theme: educated workers enjoy increasingly tighter labor markets relative to others and significantly higher levels of earnings.
Who are these educated workers? Mostly women. They earned over 50% of the Bachelor’s degrees awarded in the last decade. There are a number of reasons for why this is the case and the seminal study in this regard comes to us from Claudia Goldin and Lawrence Katz from Harvard University. They list a number of reasons: women are getting married later, a resurgence of feminism, and behavioral factors. For example, young girls are more likely to do their homework and less likely to get arrested or suspended from school. They also note that women are increasingly finding their way into “male-dominated” sectors like engineering. Whatever the reason, the fact remains that women are more likely to go to college and our sense is that this will serve them well.
While the underlying permise behind this internal "decoupling" is aneurism inducing, the BofA analysts may be on to something. As we pointed out recently, a certain segment of women are already not only taking advantage of banker generosity (whose proximal position to 0.25% discount rates must be milked by all), but translating this into economic growth: recently Rick's Cabaret announced it would be expanding its locations substantially in the new year, following unmet demand for its "services." In that regard, we couldn't agree more with BofA's analysis.