Edge and Odds

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Edge and Odds

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THE DAILY EDGE: 22 DECEMBER 2021: Wage-Price Spiral?

HAPPY HOLIDAYS!

The Daily Edge will be published sporadically in the next 2 weeks.

A special thank you to donators who help support this blog. Very, very much appreciated.

Apologies if  have not sent a personalized thank you note like I normally do. The recent weeks/months have been particularly busy for me.

On January 3rd, I will begin my 14th year blogging!

US Firms Expect Wage Costs to Spike Nearly 4% in 2022 The November Conference Board Salary Increase Budget Survey portends a 3.9% jump in wage costs for firms in 2022, compared to 3% reported in April. This would mark the highest rate since 2008. Indeed, the swell in compensation expectations for next year reflects rising wages for new hires and inflation.

Here are the key findings:

  1. Average 2021 actual total salary increase budgets jumped from 2.6 percent in the April 2021 survey to 3.0 percent in the November 2021 survey.
  2. Projections for 2022 salary increase budgets jumped almost a full percentage point from 3.0 in April to 3.9 in November.
  3. Growth in wages for new hires and accelerating inflation are the main causes of the jump in salary increase budgets. The November Salary Increase Budget Survey shows that almost half of respondents (46%) said that the increase in wages of new hires played a factor in salary increase budget estimates for 2022, and 39% said that increased inflation played a factor.

I have been saying that strongly rising wages at the low end of the wage spectrum will put pressure on the whole pay scale. The CB survey confirms that:

Overall wage growth dramatically accelerated during the past 6-8 months. That increase is especially strong for workers under the age of 25 and for people who switched jobs in the past year. This suggests that much of the wage acceleration has been among workers who were recently hired.

The faster wage growth of new hires has led to pay compression, which is when wage premiums for work experience shrinks. When more experienced workers feel that their pay advantage is no longer significant, they may seek new jobs in the tight labor market, which leads to high labor turnover of more experienced workers.

Indeed, the quits rate is now the highest in recorded history. Employers faced with extensive departures of experienced workers will raise wages faster for current employees in order to maintain an effective workforce.

The November Salary Increase Budget Survey shows that almost half of respondents (46%) said that the increase in wages of new hires played a role in salary increase budget estimates for 2022. (…)

Salary increase budgets may be adjusted upwards in the coming months as more companies adjust their policies to account for the acceleration in wages and inflation. Many companies determined their salary increase budgets earlier in 2021, before the full extent of the pickup in inflation and wage growth was evident, and before they knew how much other companies would be raising salary increase budgets. In addition, wage trends for unionized workers tend to lag market wages. Therefore, an upward adjustment to wage growth of unionized workers is to be expected in the coming year.

A wage-price spiral—where higher prices and rising wages feed each other, leading to faster increases in both—may already be in the works. (…)

The rapid increase in wages and inflation are forcing businesses to make important decisions regarding their approach to salaries, recruiting, and retention. In particular, companies are likely to raise wages aggressively for their current employees or they will risk even lower retention rates. After being a non-issue in wage determination for several decades, sizable cost of living adjustments may be making a comeback. (…)

The new contract includes pay raises, new health benefits, pension multiplier increases and cost-of-living adjustments to wages, according to an outline of the agreement from the company.

“This agreement makes gains and does not include any concessions,” said Anthony Shelton, international president of the Bakery, Confectionery, Tobacco Workers and Grain Millers International Union. (…)

Veteran Kellogg employees will receive wage increases of $1.10 an hour, with newer staff and new hires making $24.11 an hour. Those newer employees will also get a new dental benefit, and all employees will get a new vision benefit offering. (…)

The agreement, according to Kellogg, includes higher pay for its employees, including a cost-of-living adjustments. The contract that Deere workers voted to ratify last month also included those adjustments. Analysts say that these types of provisions could spread in future negotiations among unions and employers. (…)

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U.S. population growth falls to record low

The U.S. population grew by 0.1% in the year that ended July 1, the slowest rate since the nation’s founding, according to Census Bureau estimates released Tuesday.

The bureau said the “slow rate of growth can be attributed to decreased net international migration, decreased fertility, and increased mortality due in part to the COVID-19 pandemic.” (…)

“Between 2020 and 2021, 33 states saw population increases and 17 states and the District of Columbia lost population, 11 of which had losses of over 10,000 people. This is a historically large number of states to lose population in year,” the Census Bureau said.

  • Texas saw the largest increase in total population, and Idaho’s population grew at the fastest rate.
  • Texas, California and Florida all had populations of over 20 million people. New York dropped below that amount last year.

Population growth has been slowing down in the U.S. since before the pandemic.

fredgraph - 2021-12-22T081440.500

Omicron Spread Prompts More Interest in Boosters A recent rise in Covid-19 cases driven by the variant is prompting more vaccinated Americans to consider getting booster shots, but it doesn’t appear to be persuading large numbers of the unvaccinated, survey data shows.

THE DAILY EDGE: 21 DECEMBER 2021

HAPPY HOLIDAYS!

The Daily Edge will be published sporadically in the next 2 weeks.

A special thank you to donators who help support this blog. Very, very much appreciated.

Apologies if  have not sent a personalized thank you note like I normally do. The recent weeks/months have been particularly busy for me.

On January 3rd, I will begin my 14th year blogging!

U.S. Leading Economic Indicators Strengthen in November

The Conference Board’s Composite Leading Economic Indicators index rose 1.1% (9.8% y/y) during November following an unrevised 0.9% October increase. The 0.3% September rise also was unrevised. It was the largest increase in six months and outpaced a 0.9% rise expected in the Action Economics Forecast Survey. The Leading Index is comprised of 10 components which tend to precede changes in overall economic activity.

Eight of the ten index components contributed positively to the November increase including the length of the average workweek, unemployment insurance claims, the ISM orders index, building permits, the interest rate spread between 10-year Treasuries and Fed funds as well as the leading credit index. Orders for consumer goods and materials as well as stock prices also contributed positively. The index of consumer expectations for business & economic conditions fell while real nondefense capital goods orders excluding aircraft held steady.

The Index of Coincident Economic Indicators rose 0.3% (3.6% y/y) in November after an unrevised 0.5% October increase. Stability in September also was unrevised. All four of the component series rose including nonagricultural employment, personal income less transfers, industrial production and real manufacturing & trade sales.

The Index of Lagging Indicators eased 0.1% during November (+0.8% y/y) following a 0.5% October rise, revised from 0.4%. September’s increase was revised to 0.9% from 1.0%. The average duration of unemployment, the change in labor costs per unit of output slipped as did the six-month change in the services CPI. The business inventory/sales ratio, commercial & industrial loans outstanding and the consumer installment credit/personal income ratio rose. The banks’ prime rate held steady.

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U.S. Industrial Production Increases Moderately in November

Industrial production increased 0.5% (5.3% y/y) during November following a 1.7% October rise, revised from 1.6%. Motor vehicle parts shortages and recovery from Hurricane Ida affected production last month. A 0.7% rise had been expected in the Action Economics Forecast Survey. Manufacturing output rose 0.7% last month (4.6% y/y) following a 1.4% increase during October, revised from 1.2%.

Durable goods production rose 0.8% (4.9% y/y) last month after a 1.4% October gain. Motor vehicle production rose 2.2% (-5.4% y/y) following a 10.1% rise. Excluding the motor vehicle sector, factory output rose 0.6% (5.5% y/y) after a 0.8% gain. Elsewhere in the durable goods sector, high-tech product production rose 0.7% (6.3% y/y) after a 0.3% rise in October. (…)

In the nondurable goods sector, production improved 0.5% (4.7% y/y) after rising 1.3% in October. (…)

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U.S. In-Store Holiday Shopping Holds Up Despite Omicron

Foot traffic to stores and shopping centers in the U.S. on Dec. 18 — the last Saturday before Christmas — rose 19% from a year ago, according to data from Sensormatic Solutions. (…)

Black Friday week and the first three weeks of December clocked foot traffic increases of 14% and higher compared to last year.

Pointing up While store visits jumped from last year — the first holiday season during the coronavirus pandemic — they didn’t fully rebound to 2019 levels. Shopper traffic on Saturday was down 26% from two years ago, according to Sensormatic Solutions, a subsidiary of Johnson Controls International Plc that analyzes foot traffic by counting mobile devices at stores.

The Chase consumer card spending tracker is up 1.2% from pre-Covid trends (7-day average through December 14). Millennials’ spending is up 8.3%, Gen x’s +0.7% and Boomers’ -5.3%. “Buy-Now-Pay-later”?

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Shipping and Logistics Costs Are Expected to Keep Rising in 2022 Executives say the tight capacity and high demand that have sent prices surging this year will extend into next year

Transportation and logistics providers are seeking big boosts in prices for contracts for the coming year, signaling that the inflationary pressure driven by strong demand and tight capacity in freight markets is likely to persist.

With high shipping demand still far outweighing tight capacity across the freight sector, industry experts say transport operators have leverage to raise prices when negotiating new contracts. Ocean-shipping executives say they expect the rates set in many annual contracts will double compared with agreements struck earlier this year, before supply-chain bottlenecks squeezed capacity. Some trucking companies project double-digit growth in contract rates for 2022.

Prices have been rising across the freight sector, including in parcel delivery, trucking, ocean shipping and warehousing. Most freight-transportation contracts are negotiated annually, although many large shippers may have multiyear agreements with a variety of carriers. (…)

Overall, domestic shipping rates for moving goods by road and rail in the U.S. are up about 23% this year from 2020, according to Cass Information Systems Inc., which handles freight payments for companies.

A separate measure in the Logistics Managers’ Index that tracks overall logistics prices, including transportation, warehousing and inventory prices, reached a record in November, up 3.4% from October and a 14% increase year-over-year. The index was launched in 2016. (…)

Mr. Leathers, who said contract rates could rise by high single-digit to mid-double-digit percentages in 2022, expects price increases to moderate as transportation demand eases and companies finish replenishing depleted inventories. However, he said, “We don’t foresee that until 2023. All of 2022 we view as a capacity-constrained market with inflationary pressure and with significant equipment disruptions.” (…)

Delivery giants FedEx Corp. and United Parcel Service Inc. both said rates would go up an average of 5.9% next year across most services, the first time in eight years that either company had annual increases above 4.9%. (…)

Xeneta said the spot price to ship a 40-foot container from Shanghai to Los Angeles earlier this month was 75% higher than the same time last year. Carriers “go into contract negotiations right now holding the lion’s share of the aces,” said Peter Sand, Xeneta’s chief analyst.

Seko Logistics, an Itasca, Ill.-based freight forwarder, says its contracted rate to ship a 40-foot container from Asia to the U.S. West Coast could double next year to between $6,500 and $7,000. In 2019, the firm paid ocean carriers about $1,500 for the same service. (…)

Prices to lease industrial properties have jumped 25% on average nationwide over rates tenants paid at the end of five-year leases that expired in the third quarter, real-estate firm CBRE Group Inc. said in early December. (…)

Overall, transportation rarely exceeds more than 7% of the cost of goods being shipped, (…)

European gas prices hit record as Russian gas flows via Yamal reverse European gas prices hit a new high on Tuesday after Russian shipments to Germany via a major transit pipeline reversed direction, a move the Kremlin said had no political backdrop as one western firm said Gazprom was meeting its supply obligations.
Defensive bubble stocks = umbrellas in a hurricane When a bubble crashes, every part of it goes down

From Richard Bernstein Advisors:

(…) Many investors tried to take a similar approach during the late-90s, but unfortunately, with little success.

  • Strategy 1: Buy proven leaders. During the Tech Bubble, the largest stocks in the Tech sector were widely considered established winners with solid fundamentals, such as Microsoft, Cisco and Intel. Not only did the stocks of the ten largest “proven leaders” crash by an average of 84% during the bear market, half of them never recovered their peak, while those that did took an average of 15 years to do so.
  • Strategy 2: Buy tomorrow’s winners. What if investors were able to predict the future winners? Of today’s ten largest Tech stocks, also including Communication Services and Amazon, those that were publicly traded at the peak of the Tech Bubble fell by an average of 72% during the bear market and took over 11 years to recover their peak.

One of too many: Nikola Corp, which went public via SPAC last year, agreed to pay $125 million to settle with the SEC over charges that it defrauded investors. (SEC via Axios)

(CalculatedRisk)