There is the belief of many economists that in order to have more sustainable inflation the landscape needs wage inflation too that would in turn be reflected in companies taking even more price. Even though this was not the case in Venezuela, Turkey (who announced today the ban of using bitcoin for transactions) and certainly not the hyperinflation situation in Zimbabwe, I’m on board with the theory. So, I was talking with some friends last night who run some local businesses with many employees, and they told me of the major problem they are having in finding and hiring people, particularly lower skill. I keep coming back to the challenge of competing with the added government jobless benefits as a main factor. With the extra $300 per week, many are making the equivalent of $17.5 an hour assuming a 40 hour workweek. Many are left with no choice but to raise wages and prices to customers in turn. Hopefully the labor supply increases when the added benefits expire around Labor Day ironically. Here are the comments on labor shortages in the Fed’s Beige Book this week:
“One manufacturer raised its minimum wage to $15 to attract more workers, and two retailers also boosted pay for low-wage workers to reduce turnover.”
“An upstate employment agency reported that hiring activity has picked up across the board and that it remains difficult to fill lower-wage jobs.”
Philly:”Staffing firm contacts reported that demand for new orders continued to be strong, while hiring and retaining qualified job candidates remained a challenge. Numerous manufacturing contacts lamented a growing lack of machinists and other skilled workers. Contacts from several sectors noted challenges because of a lack of delivery drivers for trips ranging from commercial long-haul to last-mile deliveries. A homebuilder related that a landscaper had hired 20 laborers in early February and none showed up for work.” The underline is mine.
“One contact noted a bidding war for housekeepers in that resort location. Signing bonuses – a common practice in the warehouse sector – were reported by several contacts in the hospitality sector; for example, one restaurant had begun offering $1,000 if workers stayed for at least 90 days. Another retail contact reported possibly raising the firm’s minimum wage to $15.00 an hour sooner than previously planned.”
“Quite often, however, plans to add workers were hampered by the limited availability of qualified applicants to fill open positions.”
“One staffing services firm, which has been surveying its employees for five years, noted that in its latest survey for the first time pay had surpassed the type of work as the top priority of job seekers.”
“A hotelier said they were able to hire some front desk workers but had unfilled cleaning staff positions and little interest from workers in those jobs. Several firms also reported increased turnover and challenges retaining workers. One manufacturer said that they needed to hire and train three workers to retain one.”
“A staffing agency noted that firms seeking hourly and lower-wage workers were raising wages due to challenges filling open positions.”
“Employers noted that unemployment insurance benefits have made it hard to attract workers for temporary and low-wage positions. Some noted that child-care and concerns about COVID-19 exposure continued to lessen worker availability as well.”
“Numerous contacts reported difficulty finding workers, particularly at the entry level. Some said that hiring challenges were greater than prior to the pandemic. Manufacturers indicated that turnover of new temporary workers was elevated, with some never showing up for work.”
“Hiring firms continued to compete for workers, who remain scarce; one employer reported the response rate among applicants offered an interview was as low as 50%.”
“contacts reported raising wages and bonuses to attract potential workers concerned about their health and to keep existing workers lured by new unemployment benefits. Contacts also attributed the stronger wage pressures to higher wage expectations for new hires, particularly from low-wage workers.”
“Staffing expectations for the coming months were widely higher in most sectors, though labor availability was a widespread concern. Numerous contacts reported concern over the potential labor-dampening effects of renewed enhanced unemployment insurance benefits. A Wisconsin staffing firm reported many job applicants but few taking the next step to interviews.”
“The majority of contacts reported labor shortages, with strong demand for truck drivers, information technology staff, and skilled technicians.”
“Contacts in the restaurant industry said staffing was one of their biggest headwinds in being able to open to 100 percent capacity. Shortages of specialty trades, such as framers, plumbers, and electricians, persisted in homebuilding.”
“Employers in sectors that reported difficulties in attracting and retaining workers also highlighted tight wage competition, especially for hourly workers. Wages and benefits for positions in construction, food services, hospitality, security, and custodial services were boosted at a relatively faster pace.”
Contributing to the sharp selloff in US Treasuries in February were foreigners according to the Treasury Int’l Capital flow data seen last night. They sold a net $65.5b after selling $49.1b in January and $20.1b in December. We are going at it alone in financing our debt and deficits with the Fed filling a large void. Speaking of the Fed, they added another $84b to their balance sheet for the week ended Wednesday to a fresh record high of $7.79 Trillion. Who needs market based price discovery anyway?
Always taking the Chinese GDP data with a grain of salt and instead focusing on the trajectory, they reported Q1 growth of 18.3% y/o/y, about in line with the estimate of 18.5%. Retail sales beat estimates with a 34.2% y/o/y gain vs the forecast of up 28% while IP rose slightly less than expected at 24.5%. Fixed asset investment ytd was about in line. Real estate was also a strong competitor to domestic growth. When looking out over the next decade or two I believe the Chinese consumer will be one of the most important global economic influences just as the US consumer was over the past few decades. In response, the offshore yuan is little changed, bond yields were down slightly while the Shanghai comp was up .8% and the H share index by 1.1%.
In Singapore, non oil exports jumped 12.1% y/o/y in March, well more than the estimate of up 2.6% led by the exports of electronics, petrochemicals, machinery and pharma. The Singapore Straits was up .5%. With a 2021 P/E multiple of 15x and a dividend yield of 3.7% along with some great companies, I remain bullish on Singapore stocks.
The Eurozone March CPI was left unrevised with a headline gain of 1.3% y/o/y and a core rate of up .9%. Inflation expectations in Europe have slipped for the 3rd straight day off the highest level since January 2019. Because of the fits and starts of the vaccine rollout, it is clouding the near term economic story with the service side of the region’s economy but the manufacturing side is still an outperformer notwithstanding the supply challenges, especially with semi’s and the region’s auto companies. Expect a robust summer though for the European service sector but with not the same level of international tourism that they are used to in the warmer months.