Page 10 - ISQ Outlook 2023

INVESTMENT STRATEGY QUARTERLY

banks must get and stay restrictive for longer. Peaking inflation is Mortgage rates have spiked, and the housing markets (on both
not as significant as the terminal rate of inflation being a long way sides of the Atlantic Ocean) are already flirting with a recession.
from the 2% target. Certain parts of the population have exited the labour force, either
by choice or necessity. Return to office metrics are hovering at 50%
A Fed ‘pivot’ is not likely until core inflation falls below 4% or the
labour market suffers significant strain. The evolution of the of pre-pandemic levels, even though economic mobility data show
labour market will be crucial in the U.K. too. The policy of throwing back to normal in travel, restaurants, etc. Almost three years
liquidity at market volatility or economic weakness is no longer after COVID-19 hit, companies are still struggling to get and retain
available. Senior global central bankers hope for, and are orches- talent. Labour shortages driven by a shrinking pool of workers are
trating, a slowdown. For markets reactive to any prospect of a result of population and immigration changes, but also changes
slowing tightening, pivot, or easing, a non-recessionary period in attitudes and preferences. More than ever, businesses need to be
may prove challenging. strategic in human resource management.
The secular changes most likely to impact markets and the The starting point for employment is historically strong. Jobless
economy are the shift from globalisation to on-shoring or near- rates for developed countries are the lowest since the early 1980s.
shoring, the end of cheap and plentiful capital, and unsettled But developed economy central banks, at least for now, appear
labour markets. The United States, once a champion of free trade, willing to sacrifice employment for price stability. White-collar
has become more protectionist. Supply chains are disrupted, and industries such as technology, banking, and real estate, where
‘just in time’ gives way to ‘just in case’. Borrowing costs have staffing is above pre-COVID levels, are vulnerable. It will take time
increased sharply on more than one-third of global debt (previ- to ‘reorder’ that part of the labour force to industries in need of
ously negative yielding), and credit conditions are tightening.
workers.

In-Person Activities (% Change From 2019)
We’re returning to normal, but not to the office.

20%

0% -5.2%
-6.7%
-20%

-40%
-52.5%
-60%

-80%

-100%
Feb-20 May-20 Aug-20 Nov-20 Feb-21 May-21 Aug-21 Nov-21 Feb-22 May-22 Aug-22 Nov-22

Kastle Back-To-Work Barometer (Top 10 Metro Avg.)
TSA Checkpoint Throughput (7D Mov. Avg.)

OpenTable Seated Diners (7D Mov. Avg.)
Source: Kastle Systems, Transportation Security Administration, OpenTable, and Bloomberg; data as of 9 November, 2022

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