The American Labor Shortage Worsens

by Greg Valliere, AGF Management Ltd.

WHILE WALKING IN DOWNTOWN WASHINGTON yesterday, we were startled to see “Help Wanted” signs in restaurant windows. From Taco Bell to high-end dining establishments, there’s an acute labor shortage.

THE SHORTAGE IS PARTLY A RESULT of the Covid aid bill that was enacted last month, which provided $300 weekly unemployment benefits until Sept. 6 — a disincentive, many experts believe, for people to return to work.

THERE ARE OTHER DISINCENTIVES: Fear of contracting Covid-19, a need for parents to stay at home with children who aren’t going to school, etc.

THERE’S ALSO A SHORTAGE OF SKILLED LABOR: It’s particularly acute in the construction industry, reducing homebuilding (along with a shortage of lumber and other key components). Housing inventory is low and demand is high, so obviously there’s a huge spike in home prices.

OTHER AREAS FACING AN ACUTE LABOR SHORTAGE: Teachers, truck drivers, accountants, nurses, etc. This shortage began well before the pandemic, but it’s now pervasive. PBS reported earlier this year that there’s a shortage of plumbers in Seattle, even though many make over $200,000 per year.

WITH OLDER WORKERS dropping out of the labor market, part of the solution seems to be more immigration. The Trump administration, which enjoyed a surging economy, restricted immigration, and the impact is being felt now.

THE COMPETITION FOR LABOR, skilled and unskilled, inevitably has forced employers to raise wages and benefits to attract — and retain — workers.

CAN BUSINESSES PASS ALONG THESE HIGHER WAGE COSTS? The answer appears to be yes — customers want to dine out and shop again. We had a $15 tuna sandwich last week in California, and the service was slow because the restaurant was under-staffed. Get used to it.

THE MARKET IMPLICATIONS: Higher food and fuel prices are transitory, but wage pressure can become intractable. The jobless rate is headed to 5% or lower by winter, which will force the Federal Reserve to weigh a tapering of its massive asset purchases. More Washington stimulus won’t be necessary with full employment.
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WHITE HOUSE CAVES ON TAXES: Meeting with a bipartisan group of lawmakers yesterday, President Biden essentially told Republicans to “make us an offer” on infrastructure and taxes. Negotiations may drag on for months.

WE STILL ANTICIPATE A ROBUST PACKAGE of spending on highways, bridges, broadband, water, etc. But the tax portion is totally up for grabs, with opponents of major tax hikes now ascendant. The fall-back provision is to go easy on taxes and not pay for much of the infrastructure package.

FOR THE MARKETS, a threat of much higher corporate taxes is diminishing; a final deal later this year could be tolerable for business. But the prospect of huge new spending — without paying for much of it — will become a growing concern for the fixed income markets.

The views expressed in this blog are those of the author and do not necessarily represent the opinions of AGF, its subsidiaries or any of its affiliated companies, funds or investment strategies.

The views expressed in this blog are provided as a general source of information based on information available as of the date of publication and should not be considered as personal investment advice or an offer or solicitation to buy and/or sell securities. Speculation or stated believes about future events, such as market or economic conditions, company or security performance, or other projections represent the beliefs of the author and do not necessarily represent the view of AGF, its subsidiaries or any of its affiliated companies, funds or investment strategies. Every effort has been made to ensure accuracy in these commentaries at the time of publication; however, accuracy cannot be guaranteed. Market conditions may change and AGF accepts no responsibility for individual investment decisions arising from the use of or reliance on the information contained herein. Any financial projections are based on the opinions of the author and should not be considered as a forecast. The forward looking statements and opinions may be affected by changing economic circumstances and are subject to a number of uncertainties that may cause actual results to differ materially from those contemplated in the forward looking statements. The information contained in this commentary is designed to provide you with general information related to the political and economic environment in the United States. It is not intended to be comprehensive investment advice applicable to the circumstances of the individual.

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This post was first published at the AGF Perspectives Blog.