MORE PENT-UP INFLATION IMMINENT!

The Jobs Market Has Changed

In March 2020, after all of the restrictions began, companies instantly went into panic mode.

Cutting costs and completely shutting down operations led to mass-firings.

Unemployment levels hit 15% in no time.

The government went immediately into stimulus mode and, today, nearly 18 months later, unemployment is much lower and coming down still. Before the virus, it was 3.5%, which isn’t where we are today, but the labor pool has dramatically altered and this must be understood.

Right now, workplaces can’t seem to find employees; the struggle is such that companies are offering major incentives, sign-up bonuses, higher salaries, and are even trying to fish employees away from competitors.

It all boils down to what is called the Natural Rate of Unemployment and that figure constantly changes.

If the labor market was comprised of people ages 5 to 18, we wouldn’t be concerned with unemployment at 80%, so when we look at a country’s labor market, the equilibrium is that anyone who wants to find a job gets to do so at a fair price. Each employer can have his choice of a few willing and able candidates, but we rarely reach this Goldilocks moment.

Some people are unemployed by choice; they’re taking time off between jobs, after already getting hired (in other words, this person has asked to start in a month, since he wants some leisure) or, in other cases, choosing to go back to school, get retrained and come back stronger.

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    This is okay, but what we don’t want is for people to be laid off or struggling to find work because of a contracting economy, a slowdown or a recession; clearly, this isn’t what’s happening in the U.S. at the moment.

    Some are still afraid to go back to work or be around lots of people (virus fears), others got so many freebies from the government that they’re just chilling, while many just retired earlier and the market’s appreciation is funding that.

    It’s good that employees have more bargaining power, but at some arbitrary point, rising wages do lead to inflation. Furthermore, at another point, they lead to businesses shutting down, because labor costs eat away the entire reason for owning an enterprise — profit.

    The government is biased towards jobs and will never come out and publicly say that it demands people go to work, but it can intervene by cutting social programs, delaying its own projects {which it won’t}, or create other mechanisms like subsidies for businesses.

    Right now, we are risking seeing a situation where small businesses will shut down and big businesses consolidate, because labor costs hit small businesses first.

    We are also risking much higher inflation, because if employees feel safe about their jobs {they are} and get paid more, then they spend more!

    Velocity of money in the U.S., as it stands, is the lowest in history.

    Think of it as a fully-loaded magazine with the FED and government sitting there, trying anything in their power to make sure the consumer doesn’t set it to automatic and go on a rampage, because they wouldn’t be able to stop it in a meaningful way.

    Is that the most probable case? No. Is it possible? Absolutely.

    Best Regards,
    PortfolioWealthGlobal.com

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