Employment-related inflation has peaked – the reformer broker
Employment-related inflation has peaked. Wages do not decrease but applicants will become more plentiful as job opportunities decrease. This will put a lid on accelerating labor costs.
I invite him. It became clear this summer that the situation had changed. You can throw this post at me in October if it turns out I was wrong (or early, I’ll definitely claim early).
We will have a very healthy and happy workforce, paid more than it was before the pandemic. But the labor shortage will be greatly reduced in the second half of this year. We already hear about this facilitation in conference calls across many industries. Including both Walmart and Amazon, the largest and second largest private employers in America. They say they are experiencing overstaffing. Other CEOs and CFOs told Wall Street that finding people got easier this spring. Or they will simply need fewer people. The effect is the same.
Employers now get breathing space as the workforce leaves home and back to work. Passenger trains to New York are packed again. By accounts, everyone I know has a schedule for this year. “I do it Tuesday through Thursday,” says the Wall Street Guys. Small business owners told me, “I’m on every Monday and then we see what happens.” No one my age seems to work on Fridays. That’s why Thursday night is the new Saturday night in summer. Thursday night is tequila night in the middle-class suburban pockets up and down the East Coast. I joked a few days ago that the best thing that could happen to the Manhattan economy would be a recession. You’ll see everyone from Scarsdale, New York to Alpine, New Jersey, to Port Washington, Long Island back downtown, with bright eyes and bushy tails.
One of the brightest points in recent retail earnings reports has been that people are revamping their wardrobes and buying clothes again. This is a prelude to returning to the living world outside our homes. Employers expect to see their employees again. The more you hear the word ‘stagnation’ on everyone’s lips, the more pressure people feel to be seen by their boss and counted among the producers. What would you do, tell your wife, that you were fired because someone five years younger than him was more willing to come into the office than you? The presidents will run. I’ve been going to work for thirty years, five days a week, with no questions asked. Your millennial ass can give us three days a week. Come here tomorrow or someone else will.
I think the unemployment rate will remain low, but the layoffs that have begun will affect the mindset of the hiring manager. Less pressure. No more $1,000 bonuses for working at Wendy’s. More applicants for vacancies. Open positions are likely to be lower. People stop scheduling interviews and then darken the interviewer (yes, this has been a phenomenon for the past six months). Lots of potential entrepreneurs discover why most new businesses aren’t successful. Because it’s hard. Perhaps their idea of selling cakes on Instagram was not well thought out. It was worth a shot. What now? LinkedIn, that’s what.
The collapse in prices and enthusiasm will deal a crushing blow to the stock options orgy taking place in the venture-backed startup world. Obsession for growth companies in public The stock market has raised some unrealistic expectations for employee companies among private companies. Lots of companies were worth tens or hundreds of millions on paper that didn’t even generate a hundred thousand dollars in revenue. But they were hired like crazy. more! They were told. right Now! Catch TAM! All this was done. Startups will accept a third of the valuation (or less) of what they were expecting as recently as January, or they won’t get anything at all from their backers. This will take into account the number of employees and will be treated in compensation packages. Every year, a new batch of 22-year-olds drop out of college and would be more than happy to pamper a 29-year-old. Believe it or not, most investors and entrepreneurs will take this new, more rational environment to build businesses with satisfaction. If you are the one who pays salaries, hires people or finances everything, you are looking for a breather from the storm of 2020-2021. You are about to get it.
Nearly $8 trillion in value has been wiped out from the market capitalization of the US stock market. American households have 33% of their wealth in stocks. The economy will feel this way. It’s a negative fortune shock. It could be worse, it’s not terrible. The S&P 500 is still about 15% higher than it was before the pandemic started. But no one feels richer this year than they did last year. Especially now that the housing market is about to turn around. The Mortgage Bankers Association expects a 37% drop in volume this year, as the average 30-year fixed-rate mortgage has risen from 3.11% to 5.25% in the past six months (!). Mortgage banker layoffs are already coming, hot and heavy. This is a quick preview of what you’ll see in other industries where the rate of growth in the pandemic era is clearly going to prove unsustainable. Falling home prices, falling stock prices, falling credit availability (that’s coming next, watch out for that), plummeting small business confidence, plummeting consumer confidence – that’s where we are now.
Expect continued pressure to find qualified workers in some pockets of the economy. Maybe trucking. Perhaps the hospitality. or nursing. The shortage of pilots could remain constant. We are not out of the woods. Things will shift from one industry to another. The imperfection will pop up here and there. But it will be contained. The big picture is that we saw the worst in labor shortages and related costs. The Fed is already working its way up.