Found this great source of wage data today - the Atlanta Fed’s Wage Tracker.
No matter how we slide and dice it, wages have gone up across the board. Below are by quartile, by hourly vs not, and across regions.
Wages going up in a full employment situation suggests that inflation is not coming down anytime soon, as a full workforce with more money will look to spend on goods and services.
I haven’t researched it much - but there is the argument is that if wage growth doesn’t beat inflation it is still a cost negative to the consumer. I wonder if this effects luxury and or convenience goods and services more than anything else.
Very true. And what follows is folks asking for higher wages to compensate. Thus resulting in the wage-price spiral. Something we really, really want to avoid.
Policy makers are worried about this already. The Bank of International Settlement put out this paper is from May 2022. (It’s the kind of stuff people who misuse words like “transitory” read.)
It doesn’t say wage-price spiral is here, but notes that conditions seem to be aligning in the US for it to potentially happen.
Which I would assume if there is wage-price spiral or will lead to layoffs, job displacements, job automation, which all might be temporary but causing massive debt and damage along the way if on a large enough scale, with more permanent or at least longer lasting effects without intervention. Depending on the company the long term investment opportunity’s might be nice, “Necessity if the mother of all inventions”. Could random example I am making up - YouTube refine its workforce with automation, cut 25% of payroll reducing real estate needs and so on to support that 25% with massive audience increases cause well people bored without a job like videos. (A bit of a cold view but it is late)
I think it’ll affect convenience goods and services more than luxury goods. I don’t think the folks buying Nordstrom and Restoration Hardware are going to start shopping at Kohls and Wayfair, they might just buy 2 new dresses instead of 5. But a typical worker might start cutting out uber eats and save their money for repair if the HVAC or plumbing breaks instead of looking at what new furniture they want.
This is a real world problem as someone who regularly hires hourly rate employees it’s getting tougher and tougher to find not easier. The wage spiral has gotten out of control. It started with the large unemployment rates due to layoffs from covid and folks getting unemployment benefits for extended periods of time.
This in turn made it relatively hard to find help. So employers started have to up starting pay to get everyday employees required for the operation of daily business. And with still such a huge demand for employees if they find something else for .25 cents more per hour they just move on. As a company you raise profit margins costs etc to just essentially stay at level profits. That in turn causes the price of goods and services to accelerate at an exponential pace.
This does primarily hurt those workers that are competing in the job market most high end luxury goods aren’t near as affected as middle of the road
Yep, even with wages exploding real wages have been down all year. All roads lead back to fundamentals. Companies can only pass on so much cost to the consumer on the front end and they can only pay so much in labor on the back end.
I like to think about REAL wages from this perspective, Employers are falling behind being able to pay a real living wage due to significant increases in cost of living. This creates less buying power for everyday American. While job openings are plentiful for now, how many of those job openings pay a living wage? And if they do, how long can they stay competitive while wages continue to demand more from a smaller labor participation pool and rising col. This is all with inflated operating costs, higher cost to borrow, and weakening consumer demand.This effects nearly every industry in some way. Inflation has already done significant damage that we haven’t paid for yet, labor is always the last to feel the pain. This is why we have been seeing hiring freezes, pay freezes, and layoffs.
For these reasons I think CPI, inflation expectations, and monetary policy are things to continue to monitor closely, but elevated inflation is elevated inflation. 7.8 vs 9.1 vs 8.3 all are doing damage, and inflation doesnt move in a perfectly straight line, so imo play the volitility but earnings, financials, cash flow, guidance will tell us more about where equities are heading in the near and long term.
Well, I got the surprise amount right, I was just in the wrong direction… lol
Interesting thing about CPI and current day data inflation might of peaked, but peaking is not equal to solving. Sustained months of inflation over 5% will destroy middle class but stock wise allow companies to become more profitable. If it were to playout this - Wage Growth will subside since companies are already paying more than they budgeted for, things like Rent, and Food prices will probably not drop. Larger ticket items, Homes (buying) will get cheaper, with companies like Pepsi announcing 2%-12% price increases and smaller packages increased automation and cheaper labor when Jobs start to cool - is it reasonable to assume they come out ahead smiling. The middle class doesn’t get crushed, like some might assume but they do in fact get nickeled and dimed to death.
Many major social incentives will add to these events, wither they are sound policy or not (don’t want to debate) ie; charging for plastic bads, in my area .10 - to .25 per bag. Charging for emission’s delivery fee’s in my area .27 and so on.
Just some random thoughts, curious what others might think.
The goal is to get inflation back to 2%, not get deflation to bring prices down, so the increases are essentially permanent. Given that real wage growth was negative in the past year, this does indeed mean the middle class got a real pay cut the last year.
Also I’m pretty sure the new taxes that come out on a regular basis that you mentioned don’t get included into CPI, and they do add up eventually, so that definitely hurts some people when it’s on top of a real pay cut.
Another great thread from MacroAlf:
https://twitter.com/MacroAlf/status/1547288260090728449
He makes the case that (rephrased from one of the tweets):
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