This week, it was hard to sort out the events that caused the various market moves. Here were the U.S. data releases this week:
- Retail Sales: headline unchanged, expected +0.2% [Fri]
- Consumer Price Index: headline +0.38% m/m, expected +0.2% [Thu]
- Producer Price Index (PPIACO): -0.29% m/m, “final demand” PPI +0.4% m/m, expected +0.2% [Wed]
From the CPI perspective, inflation isn’t stopping, and this is with crude oil down pretty briskly since the high. This isn’t about energy right now. Wolf Richter has the chart breakdown on both Retail Sales (Source – Wolf) as well as the CPI (Wolf Again); services appear to be the key contributing factor. Here are where the top m/m CPI/services increases currently are: delivery services (+2.9%), health insurance (+2.1%), motor vehicle repair (+1.9%), vehicle insurance (+1.6%), vet/pet services (+1.6%), medical care (+1.0%). If it continues at this pace, delivery services will be up +34.8% y/y. That’s just insane. Other areas (leisure/hospitality) have also seen substantial increases in costs. Do we imagine that a Fed rate increase will contain services inflation? I’m not so sure.
Why the increase in services labor costs? At first, I thought this might just be disability. Then I compared labor force and wages for leisure/hospitality workers, vs. labor force & wages for information workers. Turns out, workers fled leisure/hospitality in 2020, and some have yet to return, even though the wage increase on offer was very strong. Contrast with information workers, where the labor force has returned and a whole lot more, but the growth in wages is much lower as a percentage. Manufacturing and construction are somewhere in the middle, while workers have returned in force to transportation (not shown). Not every sector is the same.
My guess: our current labor shortage in services is a combination of fear of working in person, along with disability; note that many “disabled” people can still work in “information”, but they cannot work in manufacturing, or leisure services. This makes disentangling these factors a fairly difficult task. I do think that both factors contribute meaningfully to our labor shortage. This matters, because I don’t think a Fed rate increase will affect either one. Perhaps, if we imported a whole bunch of new, unvaxxed, young, fearless workers from other places who demonstrated their hardiness by walking a fair distance to get here, might this “fix” the problem?
by davefairtex 
