I got an email the other day from our favorite pizza place here in town that they were going to start closing on Sundays because of staffing shortages. The local school district has been begging for lunch room workers, substitute teachers and bus drivers. Hospitals are crying for nurses. Even my own doctor is my nurse when I visit his office. On a more national level, FedEx can’t hire enough workers and are diverting packages from understaffed facilities to less busy facilities for routing. This reduces their efficiency, and increases their cost and shipment time. There are over 100 cargo ships off the coast of California waiting to be unloaded. Even once the containers are off the ship, moving them inland is difficult. According to the American Trucking Association, our country is short over 60,000 drivers! There are signs on businesses from coast to coast asking us for our patience because they don’t have enough help. Before the COVID-19 pandemic, we had a very low unemployment rate, but I wasn’t hearing any complaints about not being able to find workers.

So, what happened?

Slamming the brakes on the economy put a lot of people out of work quickly. As we were progressing through this economic closure, I remember reading about people who had been laid off starting their own small businesses out of their home. Others were taking the time off to further their education and skills and when the economy began to reopen, they moved on to different jobs than what they left. I also read about a lot of people who were nearing retirement made the decision to go forward into retirement. The pandemic also changed the way workers viewed working. During the worst of the pandemic, workers learned to work from home, set their own hours and balance home life with work life. These same people are wanting to have more flexibility in their hours and duties. Finally, not trying to sound political, but with the extended unemployment benefits and higher benefit amounts, combined with a moratorium of not evicting people who couldn’t make rent or house payments, and the stimulus payments, some people made more money than they could make by going back to work.

So, when is our favorite pizza place going to be able to find workers so they can open on Sundays again? My guess is that to entice people back to work, employers are going to have to offer higher pay, better benefits and flexibility that allows for a better work/life balance. Now what that really translates into is the fact that my pizza is going to cost me more money. And its not just pizza, these higher wages and benefits will be reflected in the price of everything. That spells I-N-F-L-A-T-I-O-N!

So far this year, we have seen prices going up because of shortages due to hold ups in the supply chain. In the very near future, we could move into a wage-price inflationary spiral. That is what we had in the 1970’s and it took the courage of the Federal Reserve to raise interest rates to extremely high levels and put the economy into a fairly deep recession to stop the inflationary spiral. I don’t see the same resolve in Washington these days. A major difference between now and 1970, was our budget deficit was significantly smaller. Now, by raising interest rates to combat inflation, you increase the interest payments on all our debt and that takes up more tax dollars than ever before. So, Washington has a vested interest in trying to keep rates low.

The Fed announced on September 22, that they were holding rates steady for the time being but that there would be 6 to 7 rates increases between now and the end of 2024. No indication on how large those increases might be, but at least it appears that the Fed has taken notice of the inflationary trends in our economy. Hopefully we don’t get into another 1970’s inflation scenario and have to create a severe recession to get inflation back under control.

 

 

These are the opinions of Legacy Wealth Management, LLC and not necessarily those of Cambridge, are for informational purposes only, and should not be construed or acted upon as individualized investment advice.

Mike Berry is a Registered Representative offering securities through Cambridge Investment Research, Inc., a Broker/Dealer, Member FINRA/SIPC. Investment Advisor Representative, Cambridge Investment Research Advisors, Inc., a Registered Investment Advisor. Legacy Wealth Management, LLC and Cambridge are not affiliated. Cambridge does not offer tax advice.

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