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Investors Should Watch These Signs That Inflation Is Poised to Roar

Investors Should Watch These Signs That Inflation Is Poised to Roar
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Thursday, 05 April 2018 08:32 AM Current | Bio | Archive

While wage inflation remains subdued, we remain ever vigilant for anecdotal signs that it could start percolating, especially with the unemployment rate at 17-year low of 4.1% (Fig. 10).

In recent days, a number of stories have described employee efforts to fatten their paychecks and employers’ struggle to find employees for open positions (Fig. 11).

Jackie is on the lookout for inflation and reports the following developments:

(1) Teachers striking. Teachers in Oklahoma, West Virginia, and Kentucky, have walked out or held strikes in recent weeks to improve their pay and/or get increased funding for schools.

At least 50 school districts in Oklahoma were shut Monday and Tuesday as teachers protested budget cuts and demanded higher wages, a 4/3 NYT article reported. Teachers also went to Oklahoma City to lobby lawmakers to pass a tax package to raise another $200 million for the state school budget.

“In Oklahoma, teachers asked for a $10,000 raise for themselves, a $5,000 raise for support staff, $200 million over three years in funding for local schools and $500 million over three years in funding for state agencies and other public employees. After Gov. Mary Fallin signed legislation last week that would increase teachers’ base salaries by an average of $6,000 and provide $18 million in operations funding for schools, the Oklahoma Education Association, the state’s largest teachers’ union, said a bill without full funding wasn’t enough.”

Kentucky teachers also held walkouts Monday, but most returned to classrooms or their scheduled holiday breaks on Tuesday. They too have gone to their state capitol to object to budget cuts and a bill that would make their pensions more like 401(k) retirement accounts.

Teachers in Arizona have threatened job actions, and organizers are looking to build support in rural areas for a walkout. Teachers are asking for a 20% raise and an increase in school funding.

Many of the walkouts were inspired by the nine-day teacher strike in West Virginia. The strike ended last month with the teachers and other state employees receiving a 5% pay raise. In addition, a task force was created to find a funding solution for the Public Employees Insurance Agency.

(2) Midwest needs employees. Here’s an amazing statistic: In the Midwest, there are more unfilled positions than there are unemployed people, according to a 4/1 WSJ article. Employers are scrounging for employees to fill job openings as a result.

The article used Stellar Industries, a commercial truck manufacturer, as an example. The company has its biggest backlog of orders ever, yet it “has an assembly line sitting unused because [the company] can’t find the workers to staff a second shift. Normally, [the] 450-employee company fills orders in about eight weeks. Today, it takes 18 weeks or more.”

Part of the problem was attributed to the net 1.3 million people living in the Midwest in 2010 who had left by the middle of last year. And fewer immigrants moving to the Midwest doesn’t help the labor market.

Here’s a list of states with the lowest seasonally adjusted unemployment rates for February: Hawaii (2.1%), New Hampshire (2.6), North Dakota (2.6), Nebraska (2.8), Vermont (2.8), Iowa (2.9), Maine (2.9), Wisconsin (2.9), Colorado (3.0), and Idaho (3.0).

(3) Trucks need drivers. The need for truck drivers hasn’t let up since we detailed the shortage in the past. Here, too, the statistics are eye-opening.

“Transportation research firm FTR estimates carriers overall will add 50,000 drivers in 2018. But the industry will need to add between 150,000 and 200,000 drivers over the next year and a half to replace people leaving trucking and to meet new demand,” a 4/3 WSJ article reported.

Again, the dearth of labor is having a ripple effect on the economy as companies can’t get their cargo moved on time or at a reasonable cost. The article explained: “General Mills … said during an earnings call in March that freight costs on the spot market for truck transportation were near a 20-year high, joining a growing lineup of retailers and manufacturers that have pointed to higher costs and lost business from transportation constraints.”

A wage increase hasn’t even helped attract enough truckers. “The American Trucking Associations, a trade group that represents fleet owners, said annual truck-driver salaries rose between 15% and 18% from 2013 to 2017, with growth varying based on the type of fleet and the nature of the routes,” a 3/28 WSJ article reported. “Some private-fleet drivers earned as much as $86,000 annually in 2017, up from $73,000 in the group’s 2013 survey, on top of benefits packages that included new paid leave offers and more-generous retirement plans. The survey showed the median salary for a truckload driver working a national, irregular route—essentially an entry-level driving position—was $53,000, up $7,000 or 15% from 2013.”

(4) More visas, please. A record number of summer H-2B visas were requested on the first day possible to file for them. “For this summer season, businesses filed requests for more than 81,000 workers with the Labor Department on Jan. 1, the first day possible, a record, and more since then. Many firms tried to file applications after midnight on New Year’s Eve to be near the front of the line,” a 3/30 WSJ article reported.

The annual visa cap is 66,000, evenly divided between winter and summer help. There have been failed attempts in Congress to lift the cap, so now businesses are pressuring the Department of Homeland Security to authorize extra visas. However, last year the Trump White House pressured the department not to raise the cap, because the President campaigned on the idea of protecting American workers against foreign competition. The department, then headed by current White House Chief of Staff John Kelly, decided to allow an extra 15,000 visas.

Dr. Ed Yardeni is the President of Yardeni Research, Inc., a provider of independent global investment strategy research.

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EdwardYardeni
While wage inflation remains subdued, we remain ever vigilant for anecdotal signs that it could start percolating, especially with the unemployment rate at 17-year low of 4.1%.
investors, inflation, roar, sign
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2018-32-05
Thursday, 05 April 2018 08:32 AM
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