Pays Aren’t Just As Thick As They Look: Inflation, Wage Growth And Labor Shortage Growth In The 21st Century
But there’s another concern. Wages are still rising, but they are not keeping pace with consumer prices. You don’t need to be a math genius to realize that 5.2% is less than 6.2%.
Inflation is not just a function of the price of oil and other commodities and production costs like manufacturing and shipping. How much workers take home in their paychecks is also a big part of the inflation picture.
People tend to spend more money when they have more money in their wallet. Companies can raise prices on their own.
Wage growth above 5% is historically high. Wages rose 3% before the swine flu. But labor shortages, due to Covid-19 and people dropping out of the workforce, shifted power from employers to employees when it came to worker pay.
Inflating the U.S. Economy: Predictions from August’s Measurements of Personal Consumption Increased 6.2% in August
The government said Friday that its preferred inflation metric, personal consumption expenditures, rose 6.2% in August. That was below July’s reading.
Economists have predicted that the economy will slow and inflation will moderate in the months ahead. But they have been expecting an imminent cool-down for the past 18 months, and the data have repeatedly proved them wrong. Fed officials have said they plan to raise interest rates and limit the economy until prices come down, because they are worried that rapid inflation will last. They estimate that their borrowing costs will go down to about 4.5 percent by the end of 2023.
Despite inflation pressures retail sales have held up. American shoppers would start buying essentials once they reached their breaking point. A slowdown in consumption will inevitably lead to lower prices…but also slower economic growth.
Stocks Week ahead: A Time to Reposition and Be Patient, or When Investors Get Their Oases in the November/December Stock Market
The third quarter is over. The market has been doozy. It was a bad month in September. The February was the worst since the beginning of the H1N1 flu.
But even though we’re seemingly in a bear market for everything as bonds, gold and bitcoin have all tumbled this year as well, there are some hopeful signs for the next few months.
The fourth quarter is a time of celebration on Wall Street. Investors tend to buy stocks in anticipation of robust consumer shopping during the holidays. Businesses spend more to get their yearly budgets under control. And major companies also often give rosy guidance in October about earnings expectations for the coming year.
“October has been a turnaround month—a ‘bear killer’ if you will,” said Jeff Hirsch, editor-in-chief of the Stock Trader’s Almanac, in a recent blog post.
Traders will definitely be keeping close tabs on Washington this fall to see if Republicans gain control of the House. It could lead to more gridlock in DC that investors like.
Whether or not Corporate America and investors are going to be so bullish this October is up for debate given the concerns about inflation, interest rates and the global economy. After all, October is also famous for huge crashes, most recently in 2008 but also in 1987 and, of course, 1929.
“We’re nearer to a bottom,” said Christopher Wolfe, chief investment officer of First Republic Private Wealth Management. “A lot of quality companies are on sale. It’s a time to be patient and reposition.”
Source: https://www.cnn.com/2022/10/02/investing/stocks-week-ahead/index.html
The Cool-down of the Labor Market: News from ConAgra and Other Inc. News from the First Million Days of the Great Wall Wall
US weekly unemployment claims; earnings from ConAgra and several other companies.
The labor market was always bound to cool off eventually. Almost no one thought that furious hiring pace was sustainable long-term. Now, the cool-down is clearly underway. There is a slowing of hiring. Job openings are falling. Fewer people are jumping ship to other employers.
The pool of available workers has grown as more people come off the economy’s sidelines, and it is easier for companies to recruit and keep employees if they are paring their hiring plans. The labor force grew by more than three-quarters of a million people in August, the biggest gain since the early months of the pandemic. Some executives expect hiring to keep getting easier as the economy slows and layoffs pick up.
Eric Hart, the chief financial officer of the company, told investors on the earnings that there could be an opportunity for them to ramp some of those hirings over the coming months.
The Frustrated Fed and the Labor Market: Predictions for the Labor Rates and Hiring Rates Reports on Thursday and Friday
Typically a sign of economic strength, at the moment a resilient labor market is bad news for investors, as it points to the need for the Fed to raise interest rates even more than it already has. Higher rates, in turn, raise costs for companies, weighing on stock prices.
The Fed would be happy to see wage growth slow down, even though it sounds crummy. Less money in our wallets leaves us with less spending power, and when we stop buying things, prices go down. In theory, anyway. That’s just one part of the large and complicated inflation puzzle.
The labor market will be a key factor weighing on the Federal Reserve as it tries to fight inflation when the monthly jobs report comes out on Friday.
Forecasters expect the report to show a modest downshift in hiring from August, when employers added 315,000 jobs. The unemployment rate is expected to remain at its current level.
We are, I’d now argue, just starting to see the effects of the interest rate hikes the Fed has been making since early this year. Never mind what inflation and jobs data are saying right now; there’s a lot of reduction in inflationary pressures — and a lot of drag on output and employment — already in the pipeline. The economy, as some business analysts like to say, may well be “rolling over.”
Wages pose a particular conundrum for the Fed. It wants us to shop just a little less – but not a lot less. It is not possible to make a difference on how much wages need to go down.
If it comes in well below 250K, you might see some renewed optimism that the Fed’s policies are starting to have their intended effect, and it may not need to keep inflicting pain on the economy.
The Fed as a Central Bank of the World: The Case of the F-150 Lightning and the Redundant Price Increases on its Entry Level Model
It’s hard to overstate just how delicate the situation is. Kristalina Georgieva, managing director of the International Monetary Fund, described the world as being in a period of historic shocks after a flurry of economic shocks over the last two and a half years.
It is the recipe for global upheaval and even a recession. The Fed will keep raising interest rates. That’s because the Fed, like central banks around the world, is in charge of domestic economy goals: It’s supposed to keep inflation slow and steady while fostering maximum employment. The Fed is often called a centralbank to the world, because of its importance in the US economy.
Ford raised the prices on the F-150 Lightning once again. Citing “ongoing supply chain constraints, rising material costs and other market factors” the company said the entry-level model will be priced at around $52,000 — up significantly from $40,000 when the truck went into production this spring.
Nightcap: Why we shouldn’t build an army that destroys humanity? (CNN Business) Elon Musk and Twitter postpone Musk’s deposition in the court fight over the $44 billion acquisition agreement
According to state media, President Alexander Lukashenko banned consumer price increases across the economy. Any price increase is banned from today. Prohibited!” The president is quoted as saying.
(CNN Business) Lawyers for Elon Musk and Twitter have agreed to postpone Musk’s deposition in the court fight over their $44 billion acquisition agreement, a source familiar with the negotiations told CNN. Musk was originally scheduled to give a deposition today, but he threw a curveball earlier in the week, offering to buy the company under the original terms of the deal in exchange for scrapping the litigation. The two sides are still haggling over various conditions.
(Axios) Boston Dynamics, the company behind those viral videos of its creepily agile four-legged robots, is pledging not to weaponize their products and encouraging others in the industry to do the same. According to a letter reviewed by Axios, the company suggests that its customers don’t believe them if they say they aren’t building an army that destroys humanity. Thankfully though, they’ve now said they’re not doing that. Oh yes, phew!
Source: https://www.cnn.com/2022/10/06/business/nightcap-jobs-report/index.html
The Peloton Story of a Hurricane-Rescuing Company: The Times for Work Stoppage and Preemptive Evacuations at JFK8
(CNN Business) Peloton announced yet another round of layoffs — its fourth round of cuts this year — as its new CEO attempts to shore up the company’s bottom line. Or, as the company spokesperson put it in a statement: Peloton is on a “transformation journey” in which it is “optimizing efficiencies” to “achieve break-even cash flow.” (I don’t know who writes this bloodless business-speak but, man, I would love to make it stop).
CNN is a business. Amazon suspended roughly 50 workers at its only unionized warehouse Tuesday after they organized a work stoppage following a fire at the facility. A fire broke out Monday at the Staten Island facility, known as JFK8, and workers reported that parts of the building still smelled of smoke and that it was difficult to breathe. An estimated 100 workers walked off the job.
Global warming has created new problems for the forecasters according to meteorologyologists. Not only are hurricanes getting stronger, they’re also intensifying more rapidly than they used to, making it difficult to issue early warnings for communities in their path. Notably, officials in Florida’s Lee County waited for definitive evidence that they would be hit hard by Hurricane Ian before ordering evacuations — and by then it was too late for many people.
Is the Fed Braking Too Hard? Economic Policy and the Implications for the Cost of Living, Salatrition and Hiring in Developing Countries
Is something similar happening with economic policy? Recently I wrote about the growing buzz from economists and businesspeople to the effect that the Federal Reserve, which has been trying to slow the economy to fight inflation, is braking too hard. The buzz has increased. Despite a disappointing inflation report and some positive signs for the job market, I believe that the Fed is getting behind the curve.
Higher rates slow inflation by cooling consumer demand and allowing supply to catch up, paving the way for more moderate price increases. But in the process, they slow down hiring, weaken wage growth, prompt job losses and ripple through financial markets in sometimes disruptive ways.
Many countries are raising their rates so quickly, that it is hard to say how severe the slowdown will be once it takes full effect. Monetary policy takes months or years to kick in completely.
But many economists and several international bodies have warned that there’s a pronounced danger or overdoing it, including a United Nations agency that warned the damage could be particularly acute in poorer nations. Developing economies have already been dealing with a cost of living crisis since food and fuel prices surged, and now the dollar is making imports from the US more expensive.
Nela Richardson is an economist at the payroll processing firm, and she said that this is good news for the Federal Reserve. “You are seeing some softening in early-stage demand [for workers] but still continuation in hiring.”
“It’s really hard to hire somebody this month and three, four months from now let them go. So people are being a lot more cautious,” said Tim Fiore, who conducts the survey for the Institute for Supply Management.
Manufacturing represents a small slice of the overall workforce, however. A similar ISM survey of service-sector businesses did not report a slow down in hiring.
ADP, which handles payroll for more than 25 million workers across the country, reported solid job gains in restaurants, retail and professional services last month.
Inflation Watchdogs in the Post-PCD-19 Era: a Keystone for a Strong Recovery from COVID-19
The Fed governor said she was hopeful that more people would return to the labor force if the health impact of COVID-19 continued to diminish. “But there is a risk that labor supply remains below its pre-pandemic trend.”
“The more people who come back to the labor market, the more likely we’ll see some loosening in hiring conditions and a continuation of these steady gains,” said Richardson.
August saw a big influx of new and returning workers, as nearly 800,000 people joined or rejoined the labor force. Inflation watchdogs at the Fed will be on the lookout to see if that trend continued in September.
There are currently 1.9 jobs for every person looking for a job and the Fed is concerned that they will keep inflation high. With plenty of options, workers are demanding higher wages, and managers are getting higher pay, which increases demand for goods and services and drives up prices.
Cook and her colleagues on the governing board of the Federal Reserve have made it clear that interest rates will remain elevated until there is convincing evidence that prices are leveling off.
“Inflation is too high, it must come down, and we will keep at it until the job is done,” Cook said Thursday, in her first public speech as a central bank policymaker.
The Recovery from the Graining Pandemic: Implications for Employment and Labor Relations in the Light of a Very Strong Labor Market
Editor’s Note: Gad Levanon is the chief economist at the Burning Glass Institute. He was the former head of The Conference Board’s Labor Market Institute. The opinions expressed in this commentary are his own.
“Look, what we’re seeing right now is solid growth this quarter. Growth has obviously slowed following a very rapid recovery from high unemployment,” Yellen said when asked about whether the latest GDP data assuaged any recession concerns. We are at a full employment economy. It’s very natural that growth would slow. And it has over the first three quarters of this year, but it continues to be OK. We have a very strong labor market. At this point, I do not see signs of a recession in the economy.
The increase in the number of new STEM jobs was the result of a rapid increase in corporate investments in software and R&D. Because the workers are well-paid, they have had plenty of disposable income to spend, which has supported job growth throughout the economy.
The year will look different next year. Many of the industries that are still recovering from the pandemic will have reached pre-pandemic employment levels. With demand saturated, those industries may revert to slower hiring. But this alone is unlikely to push job growth into negative territory. What will do that is monetary policy.
There are two ways to rein in the labor market: Either reduce demand for workers or increase the labor supply. But it is difficult to increase labor supply. That takes the kind of legislative action needed to increase immigration, drive people into the labor force or grow investment in workforce training. This is likely to prove elusive in today’s polarized political environment.
As interest rates rise, Fed officials would want companies to cut back on recruitment. So far, we’ve seen only limited evidence of such a trend.
“There was hope that the reopening of schools would have been a great moment for a restart” for many of the people who left the labor force during the pandemic, Pollak told CNN Business. Some of the people who left may not come back.
The Recovery of the Labor Market after the September 23rd Fed Inflationary Rate Increase Revisited: a Conversation with Dean Baker
The unemployment rate for September fell back to its half-century low of 3.5% from 3.7%, a result of the decline in the number of people looking for work.
Wednesday’s rate hike may be the last one of its kind. Markets will be on the lookout for any signal that the Fed plans to scale back to a smaller increase in December. But McBride argues that in order to curb inflation, borrowing costs will likely have to remain elevated for an extended period.
The Fed meets November 1-2 to discuss monetary policy and is widely expected to raise its benchmark interest rate by three-quarters of a percentage point for an unprecedented fourth time in a row.
Dean Baker is a senior economist at the Center for Economic and Policy Research. The Fed would probably like a job gain under 200,000 a month, he said.
The pandemic forced restaurants to incorporate online ordering, pick-up and delivery on a greater scale, and customers became more comfortable in using those services, he said. He said that hotels haven’t bounced back completely but that the rise of businesses like Zoom and other competitors might result in more subdued demand for hotel stays.
In addition, while private sector employment returned to pre-pandemic levels earlier this year, public sector employment remains nearly 600,000 jobs, or 2.6%, below levels seen in February 2020, BLS data shows.
The recovery remains uneven, and it’s growing more complex as the labor market starts to feel the influence of the Fed’s series of supersized rate hikes, Pollak said.
The BLS Survey of Small-Scale Jobs in the U.S. and Beyond: Implications for Education, Daycare Services, and Transportation
From August to September, local public education jobs fell by 22,000; day care services employment fell by 2,000 jobs; and truck transportation fell by 11,000 jobs, according to BLS data. While those declines are small, they are moving in the opposite direction at a critical time.
Weaver noted that supply chain concerns and the ability for people to have reliable education and child care services so they can return to the workforce are among the large ripples in those and other sectors. “That can certainly impact [parents’] long-term and future economic and work prospects.”
“We’re not sensing that a recession is imminent,” said Dionne Nelson, Laurel Street’s chief executive officer and founder. “We’re still very busy. We are still looking for people. Our markets are still very active.”
The Federal Reserve will hike interest rates next month, putting extra pressure on companies and weighing on stock prices, as fresh data shows the health of the labor market.
The S&P 500 fell nearly 3 percent on Friday, dragged down by interest rate-sensitive sectors like technology stocks. Government bond yields, indicative of the future path of interest rates, rose and the dollar strengthened.
September Job Growth During the First Three Months of Inflation: What Have We Learned About the U.S. Economy?
The job growth slowed slightly in the month of September but remained strong, suggesting that the economy was still going strong despite higher interest rates. The strong showing left many investors unhappy because they saw signs that the fight against inflation may become harder and longer.
“If I had just woken up from a really long nap and seen these numbers, I would conclude that we still have one of the strongest job markets that we’ve ever enjoyed,” said Carl Tannenbaum, chief economist at Northern Trust.
The pandemic left a lasting mark on the U.S. economy. Less people are working in restaurants today than in February 2020. Some parents are forced to work just part-time or not at all due to a lack of child care. Researchers estimate how many people are kept out of work by “Long Covid”, but it’s unclear how accurate that is.
Getting there has been bumpy. Businesses reopened last year and more jobs to fill than applicants were available to fill them. That was good news for workers, who were able to jump between jobs and negotiate for higher pay. It helped feed inflation as businesses raised prices to cover higher labor costs.
The job market is not nose-diving. Even though the total of 263,000 jobs added in September was the lowest in more than a year, it was still a healthy gain. Layoffs remain extremely low; fewer people are getting jobs, but we haven’t seen any meaningful increase in the number of people losing them.
Mr. Biden said the report showed “some progress” in combating the increases, noting that costs have climbed by less over the past three months than they had in the prior three months. He acknowledged that inflation was still high.
It is not known how the thinking of the Fed will evolve during its last meeting of the year in December. Even if inflation shows little sign of cracking by then, policymakers may want to give themselves time to see the cumulative effect of their rate increases, as well as fallout from monetary policy adjustments taking place around the world.
The Fed isn’t Just Bringing Down the Heat: Why the Fed and the Markets Have a Role in Suppressing Inflation
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It is safe to say that the global economy is not doing well right now and that we are on the verge of a recession. But US markets don’t seem to mind. Stocks closed out their best week since mid-June last Friday and continued that rally into Monday.
So what gives? A decade of free-flowing money from the Federal Reserve to banks has created two economies, argues Nomi Prins, a former managing director at Goldman Sachs and author of “Permanent Distortion: How the Financial Markets Abandoned the Real Economy Forever.” Main Street suffered from decelerating wages and little support, but the wealthy Americans and corporations got a lot of money from years of low rates. There is a permanent distortion, where economic prosperity and market behavior have nothing to do with each other.
The markets, which have taken a beating this year, are at multi-month highs again. It is pointless to apply economic rationale to stock markets, according to Prins in a recent interview.
The central bank is charged with two mandates: maximize employment and ensure price stability. Ideally, the Fed would like everyone to keep their jobs while damping demand just enough to take the heat off consumer prices, which have been hovering at 40-year-highs and currently sit at 8.2%. Powell still thinks that it is possible, but most economists say that the chance of a soft landing is remote.
The largesse flowed into markets and not into the economy at large, creating the world where investors became dependent on the Fed while the larger economy suffered.
The credibility problem: When the Federal Reserve began raising rates earlier this year, officials publicly explained how important their credibility is to successfully lowering inflation rates. Americans need to believe in the central bank’s fight to bring down prices if the Fed succeeds, they said.
But investors don’t think it’s true. They think a policy pivot is coming even though the Fed says it isn’t. They understand, says Prins, that eventually the Fed will return to its long-term policy of aiding markets.
Meanwhile, she says, it’s Main Street, not Wall Street, that’s feeling the brunt of these interest rate hikes, through increased mortgage and borrowing rates and a slowing jobs market.
More than half the NABE respondents said they believed there was a more than 50% likelihood of America experiencing a recession within the next year, with 11% saying they believed the nation was already in one, according to the survey released Monday, reports my colleague Alicia Wallace.
According to the survey, the lack of materials and labor continues to be a problem. The share of respondents who said they had shortages was close to record levels.
The UK’s Third Prime Minister Has Left a Legacy: The Rise and Fall of the Second Great Recession in the First Half of the 20th Century
After a period of political and financial market turmoil, Britain’s third prime minister will have a challenge projecting stability. He’s the one who has to shepherd the country through a recession.
Sunak promised to help households tackle the rising cost of living, which is making many pull back spending. He promised to cut taxes, but only once price pressures abate.
Yet the economic outlook has deteriorated sharply since then — not least because of the market turmoil unleashed by Truss’ now-abandoned plan to slash taxes as soon as possible and boost government borrowing.
▸ Microsoft
(MSFT), Alphabet
(GOOG), Visa
(V), Spotify
(SPOT) and Chipotle
(CMG) report third-quarter earnings after market close.
Plus: The Conference Board is expected to release October Consumer Confidence which measures the level of confidence consumers have in the economy at 10 a.m. ET.
In light of the new data that showed a necessary slowdown in the economy, as well as the possibility of a recession in the next year, Yellen was hopeful that a soft landing would be possible.
The economy remains strong and standing out in comparison to how other economies around the world are.
The Bureau of Economic Analysis estimates that the gross domestic product took a jump during the third quarter. That’s a turnaround from a decline of 1.6% in the first quarter of the year and negative 0.6% in the second.
The Complex Balancing Act that the Biden and his Economic Officials have Led to the Successes of Covid-19, as Revealed by Yellen
The complex balancing act that Biden and his top economic officials have tried to pull off over the course of this year, as they strive to highlight rapid economic recovery and major legislative victories while also pledge to tackle soaring prices, was highlighted by the view of Yellen.
It’s a reality that has undercut efforts by the administrationto take advantage of what officials view as a robust record. The economy is strong, Biden said last week, drawing criticism from Republicans.
The administration isn’t happy that its efforts to pull the economy out of crisis haven’t received the credit officials believe is merited.
Many American families could have faced difficulties, and there were several problems that we could have had. “These are problems we don’t have, because of what the Biden administration has done. One often does not get credit for problems that do not exist.
Yellen traveled to Cleveland as part of an administration push to highlight the major legislative wins – and the tens of billions of dollars in private sector investment those policies have driven toward manufacturing around the country.
It is part of a strategy designed to address many of the vulnerabilities and flaws that came to light as Covid-19 ravaged the world.
Even though she acknowledged they would take time to full effect, she said they were just a few of the major private sector investments happening now.
You are seeing repaired bridges come online, but not in every community. Many communities are going to see roads improved, bridges repaired that have been falling apart. Money is flowing into research and development, which is an important source of long term strength to the American economy. And America’s strength is going to increase and we’re going to become a more competitive economy,” she said.
Source: https://www.cnn.com/2022/10/27/politics/janet-yellen-gdp-recession-cnntv/index.html
“It’s going to take a long time to turn this tide around,” Rep. El.D. Yoellen told the White House on Wednesday
Yellen also addressed the battle lines that have been drawn this week over raising the debt ceiling, a now-perpetual Washington crisis of its own making that House Republicans have once again pledged to utilize for leverage should they take the majority.
“The President and I agree that America should not be held hostage by members of Congress who think it’s alright to compromise the credit rating of the United States and to threaten default on US Treasuries, which are the bedrock of global financial markets,” Yellen said.
She made clear she didn’t plan to be one of the top officials to leave the administration. She said that it was an accurate read about the reports she had told the White House she wanted to stay.
The program that we talked about is something that I am excited about. “And I see in it great strengthening of economic growth and addressing climate change and strengthening American households. I want to be a part of that.
It is believed that the Federal Reserve will raise interest rates by a lot on Wednesday as questions bubble up about how much higher borrowing costs will have to go.
“We’re not done yet because interest rates have risen at a whiplash-inducing speed, and we’re not done yet,” said Greg. “It’s going to take some time for inflation to come down from these lofty levels, even once we do start to see some improvement.”
Annual inflation in September was 6.2%, according to the Fed’s preferred yardstick — unchanged from the month before. The consumer price index shows that prices are rising at an annual rate of 8.2%.
The Fed’s First Rate Adjustment Plan: When Will the Rate Increases Continue to Slow Down Families? – A Kansas City Home Builder’s Perspective
Esther George, the President of the Federal Reserve Bank of Kansas City, said that there is a bit of a savings buffer still sitting for households. “That suggests we may have to keep at this for a while.”
George is a member of the rate-setting committee of the Fed and has expressed her determination to control inflation. She’s warned against raising rates too quickly at a time of economic uncertainty.
George said in last month that he was in the camp of steadier and slower rate increases, to begin to see how it would affect them. My fear is that a succession of large rate hikes may cause you to over compensate and not be able to see the turning points.
“We are deeply concerned that your interest rate hikes risk slowing the economy to a crawl while failing to slow rising prices that continue to harm families,” Sen. Elizabeth Warren, D-Mass., and colleagues wrote in a letter Monday to Fed chairman Jerome Powell.
Kansas City homebuilder Shawn Woods said his company has gone from selling a dozen houses a month before the Fed started raising rates to fewer than five.
“I didn’t think we’d go from 3% to 4% in six months” said Woods, president of the Home Builders Association of Kansas City.
Inflation and wage growth: Why we don’t want to go after what we can’t, but what we do want to do
The logic behind Powell’s attention on job openings is simple. Employers typically don’t try to hire when people aren’t buying their products, so demand measures are a direct measure. It is clear that the link between inflation and wage growth is connected to the number of companies that are hiring.
Economists see quitting as a sign of confidence among workers: Changing jobs is a risk, so people avoid doing so if they’re worried about the economy. Wage growth is dependent on job-switching, since people often don’t jump employers without a raise. Data released yesterday from ADP, the payroll-processing giant, showed that people who switched jobs in October saw their pay rise roughly twice as quickly as people who stayed put.
“Reducing inflation is likely to require a sustained period of below-trend growth and softening of labor market conditions,” Powell said Wednesday. “Restoring that price stability is essential to set the stage for achieving stable employment and stable prices in the longer run.”
Unfortunately for Democrats trying to hold on to power next week, the pain of inflation appears to be outweighing any positive sentiment about job security. According to a new CNN poll, three-quarters of likely voters already feel like the country is in a recession.