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Long live the consumer 

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Jason Norris

Recent economic data has shown a rapid inflation pick-up. We are seeing this firsthand in grocery stores and at the pump. While the most recent Consumer Price Index increase was the highest in 30 years, we believe this spike will normalize as we move into 2022. While prices remain elevated for several goods, from cars to energy prices, we believe once the issues with the global supply chain work themselves out, there will be normalizing. Labor costs and housing are resulting in longer-term upward inflationary pressures, but we believe overall cost increases will be 2.5-to-3% over the next several years. Commodities and cars have been the major areas pushing up inflation and we believe the price increases here will reverse in 2022 as supply chain tightness loosens.

There are several reasons the supply chain became a major problem, but the main culprit is “demand.” From truck driver shortages to manufacturing shutdowns due to Covid outbreaks, all are playing a part, but it’s the United States consumer who is driving increased demand for goods. This demand has put a strain on the entire supply chain. The president of the Port of Long Beach stated in a recent interview that it now takes twice as long for a container to get from Southeast Asia to Chicago, which is currently close to three months. While expectations are these issues will improve throughout the next several months, analysts believe it won’t be back to normal for at least another 12 months. These shortages are being driven by a very healthy consumer, resulting in very robust spending. 

With this increase in demand, we are now experiencing a worker shortage. December’s employment report highlighted an unemployment rate at 4.2%; however, labor participation is still meaningfully below pre-pandemic levels. The majority of the national shortage of workers has been due to early retirement by those over age 55. Goldman Sachs estimates that roughly 1.5 million people have left the workforce to retire early. There are other factors that have been slowing growth in the labor market, and we believe this should improve over the next several months. Specifically, the lack of child care, concerns over workplace safety and restricted immigration should all ease over time; however, it is estimated that these issues are keeping close to 3 million people from going back to work.  

This labor shortage is really being felt in Idaho. There are currently over 50,000 job openings in the state, (as seen in the chart below). While this isn’t an all-time high, it is close to 25% more than pre-pandemic levels. 

While vacancies are slowly being filled, it continues to be very difficult to find workers to fill those positions. The recent continuing unemployment claims data (number of people that file for unemployment benefits) show roughly 3,700 people are collecting unemployment in Idaho.  

 This data highlights that those who have left the labor market are not currently even looking for jobs. This worker shortage will continue to put upward pressure on wages for the next several months. 

As demand normalizes and the supply of goods increases, price pressures should ease. However, and specifically in Idaho, labor and housing costs will continue to show upward pressure throughout 2022. 

Jason Norris, CFA, is a portfolio manager for Ferguson Wellman Capital Management’s Dividend Value, Core Equity and Global Sustainable Investing strategies.
 This article is for informational purposes only and should not be viewed as advice or recommendations with respect to any particular investment.

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