mark ballard

Mark's Investment Blog

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Stoking The Fires of Inflation

I know this chart is difficult to read, but I am using one prepared by economist Peter Bookvar and he designed it for his purposes and not my blog.

The chart shows the readings from the National Federation of Independent Businesses survey. Here is his explanation:

Ahead of today’s payroll report we saw more signs of the tight labor market and the rising wage situation from the NFIB. Next week they report the full April survey results but yesterday they published the labor market components. Plans to Hire was little changed at 21% from 22% in March but trying to find help is becoming more and more difficult. Positions Not Able to Fill rose another 2 pts to 44%, the highest on record dating back to 1973. In response, wage intentions are rising. Current comp plans rose 3 pts m/o/m to 31%, matching the highest since February 2020 and future comp plans were higher by 3 pts to 20%, the highest since January 2020. Higher wages are what is now needed apparently to entice more people to take these jobs. 

Looking at the chart, you can see that job openings that are not being filled is at the highest level since the 1970’s. This is the precursor to higher wages – a good thing for workers – and something we need to keep an eye on for signs it leads to cost-push inflation.

As noted above, the chart was released prior to today’s jobs report. In the jobs report, the government announced that “average hourly earnings for private nonfarm payrolls rose by 21 cents to $30.17, after dropping 4 cents in March, spurring fears of inflation. That’s up 0.7% M/M against the consensus estimate of no change (from reporting by Liz Kiesche).”

Here is an explanation of cost-push inflation from Kimberly Amadeo that is succinct and easy to digest:

Cost-push inflation is when supply costs rise or supply levels fall. Either will drive up prices as long as demand remains the same. Shortages or cost increases in labor, raw materials, and capital goods create cost-push inflation. These components of supply are also part of the four factors of production.

It may be because I grew up in the 60’s and 70’s and remember the impact of rising prices due to bad monetary and fiscal policy, so I am hyper focused on this at the moment. That is not a bad thing as it helps me prepare client portfolios for what is coming ( and to a large extent already here – copper hit an all time high today. More from Peter Bookvar:

The price of copper today is at an all time record high, not far now from $5 per pound. Copper is the most important industrial metal in a world that wants to go renewable and it is more than just a China play. For reference, it’s previous peak in February 2011 saw a Chinese economy that was $7.5 Trillion. Today it is almost double that at $14.3 Trillion. Years of disinvestment and now a flood of demand explains the record high. I don’t recall hearing about any copper SPAC’s over the past year but every single auto related EV SPAC is hugely reliant on procuring copper. 

Watch for Part Three of Investing During Inflation on the blog in the next day or so. In the meantime, if you are not already a client (or if you are and have other assets managed elsewhere) and you are interested in having us help with your investments, just contact me at the email address on the website.

—Mark