A local bank is projecting the current economic expansion to continue a few years but believes it could have lasted longer if not for the nation’s opioid abuse crisis.
“We now lose more people to opiate overdoses than car accidents nationally and prescription painkillers result in more overdose deaths than heroin and crack combined,” said Jeff Korzenik, chief investment strategist for Fifth Third Private Bank. “This is a big problem that we as citizens have to care about and know about. It’s also an issue for us economically.”
Korzenik sounded that warning during an economic outlook session he presented Oct. 26 at Ceruti’s Catering. During the session, he referred to a paper Princeton economist Alan Krueger presented last month at the Federal Reserve Bank of Boston’s annual conference.
In “Where Have all the Workers Gone?” Kruger attributed 80 percent of a decline the nation saw in the labor force participation rate to aging of the workforce, but he also said the share of prime-age men out of the labor force is growing, and about half of that group takes pain medication every day.
The share of prime-age men out of the labor force was at 11.4 percent in September, about four times the level of the early 1960s. Nearly two-thirds of those taking pain medication every day were on prescription pain medication, such as hydrocodone, oxycodone, morphine and codeine.
“A lot of people who are on the disability roles right now got on there via the path of addiction and health complications related to this,” Korzenik said. “It’s also related to high rates of incarceration. If the morphine molecule gets hold of your brain, you will do anything to keep it up, lie, steal, cheat. And often those arrested are … people who have not had criminal pasts.”
With all the talent and potential it is undermining, the impact of the opioid crisis “is a structural impediment, a national tragedy,” he said.
The labor force participation rate is the metric Korzenik believes will have the greatest impact on the length of the expansion, which he compares with a baseball game in its seventh inning. After declining almost 4 percentage points since the start of 2008, the rate reached 62.4 percent in September 2015, which was its lowest level since 1977.
There was a lot of fretting while the share of working age individuals either working or looking for work was descending, but the end of that decline has not received the attention it deserves, he said.
“That’s really significant, because if it were to continue to go down, we’d get to a point of higher wage inflation very quickly and this business cycle would have a couple of very, very short innings left,” he said.
“At Fifth Third we believe we’re in for a period of sideways stability, and that trend will probably give us a couple of years left in this business cycle. One or two years.”
If the labor force participation rate were to rise as the economy grew, the increase would be likely to extend the expansion because the supply of labor coming into the market would offset some of the wage inflation it otherwise eventually would see, Korzenik said.
In recent years the economy has added about 200,000 jobs a month. That pace slowed a little this year to 175,000 jobs, but the labor market has tightened enough that 151 million Americans already in it have started to see more meaningful pay raises, he said.
“Those of you who are business owners see this as a compensation cost challenge; we get that,” he said. “But from a macroeconomic standpoint, creating new jobs and giving paychecks to people who didn’t have paychecks before and giving 151 million people decent-size raises is very, very empowering to the consumer, and the consumer counts for 70 percent of the U.S. GDP, so this is a really good story.”
Fed Chairwoman Janet Yellen has resisted raising interest rates to give the labor force participation rate an opportunity to rise as the economy strengthens, but looking at her chances for success with that in this ballgame requires “a more nuanced view, now that we are in the later innings,” Korzenik said.
In addition to the growing amount of talent sidelined by the opioid crisis, the country has a lot of people who have stayed out of the labor force too long and employers consider them tainted because they haven’t worked for many years, or their skills are obsolete. There are many who have simply adjusted their lifestyle to a level that makes it easier to stay out of the workforce, he said.
“Right now labor force participation rates are better than they were, they’ve stabilized and that is good news; we just don’t think that they can get as good as they might have been in another period of time,” he said.
Korzenik projects the economy will see gross domestic product growth of at least 2 percent but less than 3 percent next year.