Normal, but not healthy [Video]
This article first appeared in the Morning Brief. Get the Morning Brief sent directly to your inbox every Monday to Friday by 6:30 a.m. ET. Subscribe
Thursday, June 10, 2021
The economy’s winding road to recovery continues
On Thursday morning, the highly-anticipated consumer price index report for May will be released.
This data is expected to show inflation rising at its fastest pace in at least 13 years and, by some measures, in almost three decades.
We wrote recently about the tension between the Fed’s view that these price pressures will pass in time while some investors remain skeptical. A resolution on this disagreement will not be found after today’s data is released.
And while unresolved debates over the state of the recovery might seem to suggest that something has gone wrong in the economy’s healing process, today’s crosscurrents are actually quite normal for an economic recovery. It is the magnitude of some mismatches, however, that remains most jarring.
Earlier this week, Neil Dutta, an economist at Renaissance Macro, dropped a note framing the labor market rebound as one in which the market is acting normally in the context of a situation that isn’t exactly healthy.
The normal part of this recovery is what we’re picking up in labor surveys and inflation data. How many workers remain unemployed and by how much some prices are up is unhealthy.
On Tuesday morning, for instance, the latest JOLTS report showed a record 9.3 million jobs were open at the end of April, a record for the series which dates back 20 years. The report also showed workers are quitting their jobs in droves. Encouragingly, these quits are garnering a response from employers.
“Industries with higher quits rates are the ones reporting faster growth in average weekly earnings over the last few months,” Dutta writes, highlighting that average weekly wages for leisure & hospitality workers are up 10% over the last three months. The leisure & hospitality quits rate as of April stood at 5.3%; a year ago it was 3.6%. The private sector’s overall quits rate in April was 3.1%.
“Demand for labor is up, supply of labor is down, and wages are climbing,” Dutta adds. “That is pretty textbook.”
Comments from Chipotle (CMG) CEO Brian Niccol that the company will raise prices about 4% to offset higher wage costs got a lot of mainstream media play on Wednesday. But higher prices in response to higher wages to protect rather than expand profit margins is exactly what you expect to see in a growing economy.
“The JOLTS data more broadly reinforce the idea that the recent weak readings on payroll employment reflect labor supply constraints,” Dutta writes. “These constraints – UI, COVID, school closures – will ease in some form over the next few months.”
Where things remain and will get interesting for the economy in the months ahead is on bridging the gap between the 7 million or so workers who are unemployed relative to February 2020. Millions of women have dropped out of the labor force during the pandemic as schools were closed or open on modified schedules. Enhanced unemployment benefits have replaced more than all of some workers’ lost wages.
A normal school year in the fall and the expiration of some unemployment benefits should make the labor pool for a company like Chipotle deeper in the months ahead. Staffing levels should normalize at higher wages and further price increases might not be necessary to maintain margins.
Healthier dynamics on a road towards something like normal.
By Myles Udland, a reporter and anchor for Yahoo Finance Live. Follow him at @MylesUdland
Yahoo Finance Highlights
Meme stock rally broadens: Geo Group, Clean Energy Fuels shares soar
Exclusive: New farm legislation would overhaul how the U.S. tracks and reports subsidies
The COVID-19 migration was ‘good for the furniture industry’: Overstock CEO
—
Read the latest financial and business news from Yahoo Finance
