Latest Inflation Numbers and Discussion

[MichaelB]

Anecdotally, I went to the mall this morning to change our wireless provider from Verizon to T-Mobile. It was relatively quick and straightforward, and while the change was done I chatted with the associate. The store was empty and the mall had light foot traffic, and he attributed it to inflation. First time I’ve ever seen it like this. Even during the ‘08 recession and pandemic, this mall was always crowded over the holiday season and people had lots of bags. Today, few people and even fewer purchases.

One thing I did notice was all the dogs. I counted at least 10, all on leash. None were service or assistance- all pets. I think retail is hurting.

 

[Koolau]

The COVID crisis is over, yet the government is still sending out enhanced food stamps to folks as if the crisis continues.

This and the rest of the $1.7T of government supplied cash on personal balance sheets is allowing folks, but especially young people in greatest numbers, to remain out of the workforce.

Businesses having the outspend government just results in inflation, a bad deal for everyone. And it drives businesses to invest in automation which is happening.

Yeah, automation is taking over traditional retail here in the Islands. Our labor costs have always been high and now they are at a point that automation is all that makes sense.

Heh, heh, if you want to be "waited on" by a person at McDs, better go to the drive through where your order may be taken by someone in another country but at least a human hands your order through a window - I always ask for extra napkins - just for the personal touch! YMMV

 

[NW-Bound]

If businesses finally caved and realized they have to pay more for workers, that would explain finally seeing adequate staffing. That also explains how labor is contributing to inflation via wage increases.

Exactly.

It's OK for the wages to jump up. Businesses have to pay more for people to work. We have a free economy.

As long as the wages don't keep on going up, then it means inflation has abated. This remains to be seen, of course.

It is not expected that wages will go back down. Once prices go up, they usually stay up, other than commodities that fluctuate a lot with supply and demand such as oil.

 

[MichaelB]

It's OK for the wages to jump up. Businesses have to pay more for people to work. We have a free economy.

As long as the wages don't keep on going up, then it means inflation has abated. This remains to be seen, of course.

It is not expected that wages will go back down. Once prices go up, they usually stay up, other than commodities that fluctuate a lot with supply and demand such as oil.

That’s the thing. When both wages and prices rise, then stop rising and settle on the new, higher level, that’s “transitory inflation”. When prices and wages rise, then rise again, and neither show a strong sign of abating, that’s a wage-price spiral. It’ll go on until some exogenous force interrupts it, such as a recession induced by Fed monetary policy.

We’re not yet seeing a sustained wage - price spiral, and there is a lag between Fed interest rate hikes and full effect on economic growth, so we still don’t know what this will look like in another 6 months. In any case, this spiral looks more sustained now than it did 6 months ago.

 

[11522914]

OK, I'm not the BLS. I'm an anecdote. Take that for what it is.

In my little world, I'm seeing a very clear trend of easing of the employment shortages.

This hit me like a ton of bricks last night when we were at our local NHL arena. Over the last month, we've seen services at the arena improve dramatically. More parking attendants, more ticket takers, and fully staffed concession stands. During the worst of the employment crisis last spring, 1/3 of the concession stands were closed. This was during NHL playoffs with record hungry crowds! There was no way management desired that. Would you give up easily selling $15 beers and $10 hot dogs? I didn't think so.

Before the game, our habit is to go to Chipotle and get a better quality meal for 1/4 the price. Chipotle has taken down their weekly interview posters. More importantly, they opened up a second counter for take out. It was running smoother than I've seen it move in ages. Fully staffed. No shortage signs either, which were chronic. (No peppers today, no soda, blah, blah.)

Finally, on my great day yesterday, it started with a fully staffed city pool. Full lifeguard stands. This makes for a great lap swim since they can open up all 20 lanes and not force us into 9 lanes with one guard. Ever split a lane with "Mark Spitz" next to you doing his 8' wingspan butterfly? Stinks. Last spring, they even closed the pool 3 days a week because there were no guards. We've seen fully staffed guard stands for 1 month now.

So the Fed is waiting for employment to ease. I'm seeing it in my world. I think we'll start seeing it in the numbers. Once the Fed sees the trend, I think they will slam the brakes on rate rises and maybe even roll back.

Hmmm

So I go to Kohl's to pick up a gift card. This is a huge store. In the past before Christmas this place would be packed with all 12 registers open and a line of 30 people waiting to be checked out.

This time the store was not nearly as busy but there were still 30 people in line to be checked out. Only 4 registers were open. And hardly any associates on the floor. There's a difference waiting in a lengthy line when you see all the registers open versus only 4.

Later in the evening I ordered a pizza from Marcos. They must have had 15 employees in that little store. I guess they pay better than Kohl's??

 

[NW-Bound]

... In any case, this spiral looks more sustained now than it did 6 months ago.

We will just have to wait and watch, just like Powell and his cohorts are doing. I am crossing my fingers.

 

[NW-Bound]

Hmmm

So I go to Kohl's to pick up a gift card. This is a huge store. In the past, 10 days before Christmas this place would be packed with all 12 registers open and a line of 30 people waiting to be checked out.

This time the store was not nearly as busy but there were still 30 people in line to be checked out. Only 4 registers were open. And hardly any associates on the floor. There's a difference waiting in a lengthy line when you see all the registers open versus only 4.

Later in the evening I ordered a pizza from Marcos. They must have had 15 employees in that little store. I guess they pay better than Kohl's??

Or rather people are spending more money on pizza than to shop at Kohl's.

We don't have the habit of going out on Black Friday to shop, but last month read that store traffic looked bad this year. I recall that a few years ago there was a stampede at a Walmart, and some shoppers got trampled to death. None of that kind of stories this year.

So, do people do online shopping now? Prior to COVID, online Black Friday sales were increasing rapidly from $3.03B in 2014 to $9.03B in 2020. The online Black Friday sales have been about flat between 2020/2021/2022.

 

[11522914]

Or rather people are spending more money on pizza than to shop at Kohl's.

We don't have the habit of going out on Black Friday to shop, but last month read that store traffic looked bad this year. I recall that a few years ago there was a stampede at a Walmart, and some shoppers got trampled to death. None of that kind of stories this year.

So, do people do online shopping now? Prior to COVID, online Black Friday sales were increasing rapidly from $3.03B in 2014 to $9.03B in 2020. The Black Friday sales have been about flat between 2020/2021/2022.

You're right about that. I absolutely hate shopping in stores.

This year everything was purchased online. The only reason I was in Kohl's getting a gift card is I had a chase cc offer for 20% off Kohl's up to $100.

So what gift card did I get. Amazon.

So I could finish my Christmas shopping online. [emoji4]

 

[JoeWras]

I have no idea if there is any kind of wage-price spiral. That seemed to be more of a union contract thing. What was clear to me, was the significant disparity going on. My city was paying a starting wage of $8.25 for lifeguards 9 months ago. That's now up to $14.00. Additionally, they now pay training. 18 months ago they raised the minimum by $0.25 per hour and that was considered a slap in the face which caused a lot of quitting.

This has to happen first. We have to get some wage adjustments before unemployment rises.

 

[JoeWras]

Next phase: business failures

The next thing that will start happening is business failures. We can talk a lot about the "free money" (yes, I used that term too) and people sitting on it, not working.

But what about businesses? PPE forgiveness? Hello?

This is near and dear to my heart as I am on the board of a non-profit.

We may fail this year, after 50 years in existence as a 501(c)3.

PPE and other support systems kept us going during the pandemic. Our mission relies on people in close contact. We went to zero contact, therefore no programs and zero income. Normally we have $200k of program income. That went to zero. PPE and some of the programs allowed us to keep our small employee base employed. We're barely hanging on.

We lost two programming seasons. We've disconnected from our clients. We may not recover. We may fail and close shop. It is all unknown and will pan out over the next 18 months.

We are but one of tens of thousands of small business of all stripes in this situation. There will be failures. People will be sent packing. The effect has been delayed by the support structures. They are gone. The stuff is starting to hit the fan.

This will not be inflationary as hundreds of thousands will be looking for employment as this plays out.

 

[audreyh1]

Powell sounded pretty concerned about the wage pressures on inflation, that the labor market continued to be very tight, and how that was going to play out over the next year.

On the other hand wages have painfully lagged over the past decade, so some catch up was way overdue.

What has really happened was that the low cost economic gains due to massive globalization were very much disrupted by the pandemic. Supply chains, cheap labor, materials, you name it. Seems like this could take a decade to repair, and I’m not sure we’ll ever get back to how it was pre-2020.

 

[11522914]

Powell sounded pretty concerned about the wage pressures on inflation, that the labor market continued to be very tight, and how that was going to play out over the next year.

On the other hand wages have painfully lagged over the past decade, so some catch up was way overdue.

What has really happened was that the low cost economic gains due to massive globalization were very much disrupted by the pandemic. Supply chains, cheap labor, materials, you name it. Seems like this could take a decade to repair, and I’m not sure we’ll ever get back to how it was pre-2020.

I guess we'll have to see how much deglobalization and reshoring takes place. Could be quite inflationary.

 

[audreyh1]

It will be interesting. Supply chain disruptions were already inflationary and things that improve the supply chain will reduce inflation. So there are opposing forces involved.

If raw materials prices smooth out or drop that will also help. Reduction in demand can really help with this.

 

[NW-Bound]

A lot of unprecedented events and trends are taking place. I don't think we have seen things like this, so can't blame economists for scratching their collective head trying to figure this out. What I like about Powell is that he said he did not know, and had to play by ear.

 

[audreyh1]

Agreed that since 2020 inclusive we are in a completely unprecedented economic era.

Events leading up to 2008 and the Great Recession was too.

I also thought Powell was very clear about what they have to watch and constantly evaluate.

 

[Montecfo]

It's OK for the wages to jump up. Businesses have to pay more for people to work. We have a free economy.

As long as the wages don't keep on going up, then it means inflation has abated. This remains to be seen, of course.

It is not expected that wages will go back down. Once prices go up, they usually stay up, other than commodities that fluctuate a lot with supply and demand such as oil.

Free except the above market mandated wages for example that put small business OUT of business or sap funds for reinvestment.

 

[NW-Bound]

Free except the above market mandated wages for example that put small business OUT of business or sap funds for reinvestment.

We have to pay for past sins.

And as always some people pay a heavier unfair price than others. It's sad, but a fact of life. We cannot let inflation run amock.

By the way, some small businesses make out well with COVID financial assistance. Earlier this year, I met with a close friend of mine who ran a small technical consulting firm of less than 10 employees.

He said that for years, he could not get enough surplus income to pay off a business loan that he carried for more than 10 years. There was a program that loaned money to small businesses, and if they managed to not lay off any employees, the loan would be forgiven. He said that he had enough work that he would not have to fire any employee anyway, but how could he refuse money? He said he finally was able to pay off the loan of a few $100K.

 

[JoeWras]

We have to pay for past sins.

And as always some people pay a heavier unfair price than others. It's sad, but a fact of life. We cannot let inflation run amock.

By the way, some small businesses make out well with COVID financial assistance. Earlier this year, I met with a close friend of mine who ran a small technical consulting firm of less than 10 employees.

He said that for years, he could not get enough surplus income to pay off a business loan that he carried for more than 10 years. There was a program that loaned money to small businesses, and if they managed to not lay off any employees, the loan would be forgiven. He said that he had enough work that he would not have to fire any employee anyway, but how could he refuse money? He said he finally was able to pay off the loan of a few $100K.

It works great for businesses that could still operate with their normal or near normal revenue and client stream. For those whose business were shut, it just kept them alive.

 

[NW-Bound]

It works great for businesses that could still operate with their normal or near normal revenue and client stream. For those whose business were shut, it just kept them alive.

Yes. Again, the good/lucky make out better than the hapless. It is not avoidable.

With all that money dropped from helicopters, and some of that ended up in our own pocket whether directly or indirectly, how can anyone be surprised that there's inflation?

 

[Winemaker]

Hmmm

Later in the evening I ordered a pizza from Marcos. They must have had 15 employees in that little store. I guess they pay better than Kohl's??

The pizza shop may pay better, but I'd say the foremost reason is the pizza employees get tips. And some folks only report up to the minimum wage level.

Years ago, I got a single mom friend of a friend a job interview with a local car dealership. I was also friends with the owner. After a 2 week period of testing, physicals, interviews, she turned down a $15/hr job. She told the owner that she could only work for $22/hour, because that's what she was making as a server with tips. To start working 40 hours a week, she would have to pay for child care, lose the free healthcare for herself and child, food and rent assistance, and have to start paying TAXES.

 

[Chuckanut]

Years ago, I got a single mom friend of a friend a job interview with a local car dealership. I was also friends with the owner. After a 2 week period of testing, physicals, interviews, she turned down a $15/hr job. She told the owner that she could only work for $22/hour, because that's what she was making as a server with tips. To start working 40 hours a week, she would have to pay for child care, lose the free healthcare for herself and child, food and rent assistance, and have to start paying TAXES.

Sadly, one of the highest marginal 'tax' rates is levied on those people mentioned above. Earnings go over a certain amount, and the benefits drop off a cliff. I've seen it up close with young relatives who were surprised to find that working more/better/smarter got them very little extra benefit, and may have actually cost them money. It's stupid.

 

[Montecfo]

We have to pay for past sins.

And as always some people pay a heavier unfair price than others. It's sad, but a fact of life. We cannot let inflation run amock.

yes. My point was that mandated above-market wages are a part of the inflation picture. Government has made quite a few moves that drive inflation higher. JPowell and company have to fight against the government which makes the task more difficult.

And those same wages also hurt business and drive down employment due to normal market forces.

That cuts the other way but people who lose jobs due to automation may join the ranks of longterm unemployed or leave the workforce entirely: their work may not command a value equal to the government-set minimum.

That is a multi-pronged problem.

 

[copyright1997reloaded]

Sadly, one of the highest marginal 'tax' rates is levied on those people mentioned above. Earnings go over a certain amount, and the benefits drop off a cliff. I've seen it up close with young relatives who were surprised to find that working more/better/smarter got them very little extra benefit, and may have actually cost them money. It's stupid.

Agreed. Even my on kid...I was close to having to tell him to work less hours else he would lose the Roth IRA credit.

 

[Gumby]

People will act in their own economic interests. If you want different outcomes, you need to change the financial incentives so that people will make different choices.

 

[Koolau]

Sadly, one of the highest marginal 'tax' rates is levied on those people mentioned above. Earnings go over a certain amount, and the benefits drop off a cliff. I've seen it up close with young relatives who were surprised to find that working more/better/smarter got them very little extra benefit, and may have actually cost them money. It's stupid.

Heh, heh, consider where all the rules come from.