What Does the Labor Shortage Mean for Inflation?

August 26, 2021 | Rodrigo De La Peña Alanis, Associate Research Analyst

Two-line chart showing unemployment and job openings. Chart subtitle: The number of job openings in the U.S. now exceeds the number of people unemployed. Chart description: Y-axis shows number in millions, from 0 to 25. X-axis shows date from December 2000 to July 2021, labeled in increments of nine months. Blue line shows number of people unemployed. Orange line shows number of job openings, As described in the accompanying text, in recent months, the number of job openings has exceeded the number of unemployed people. Chart source: Bloomberg.

Employers have faced a number of challenges throughout the COVID-19 pandemic — most recently, a labor shortage. As of the end of June, the Bureau of Labor Statistics reported a record high of more than 10 million job openings (including either newly created or unoccupied positions where an employer is taking specific actions to fill those positions), and as of the end of July, 8.7 million people looking for employment (people who are without work, currently available for work and seeking work), creating a disconnect in the labor market.

While this is not the first time job openings have exceeded the number of people looking for work, the imbalance is more meaningful now as companies attempt to fulfill pent-up demand caused by the pandemic with sharply less labor availability. To help combat this shortage, states have started to cut unemployment benefits, though these actions so far seem to have had minimal effect. Employers must now find a way to incentivize workers to apply to openings and accept offers. This is likely to put upward pressure not only on wages but on consumer prices. In order to protect profitability, companies will have to pass on the additional costs to the consumer, adding to inflationary pressures. While many signs point to higher inflation being transitory, the labor shortage — which could continue even after extra unemployment benefits expire, given demographic trends and a shift toward the gig economy — could be a longer-term issue. We will continue to monitor inflation, its underlying drivers, and the potential impacts to our clients’ portfolios carefully.

Print PDF > What Does the Labor Shortage Mean for Inflation?

 

The opinions expressed herein are those of Marquette Associates, Inc. (“Marquette”), and are subject to change without notice. This material is not financial advice or an offer to purchase or sell any product. Marquette reserves the right to modify its current investment strategies and techniques based on changing market dynamics or client needs.

Rodrigo De La Peña Alanis
Associate Research Analyst

Get to Know Rodrigo

Related Content

Line chart plots Federal Funds Effective Rate and NPI annual total return during periods of rising rates. Chart subtitle: Core real estate has historically performed well during periods when the Federal Reserve is raising rates. Chart visual description: X-axis years begin in 1977 and in two-year increments continues to 2021 with labels, though line data is through 9/30/22. Y-axis is labeled Federal Funds Effective Rate and ranges from 0 to 25%. Rate line is purple. In periods when the rate increased, 9 labels show NPI Ann. Total Return with data label and corresponding upward green arrow. Label overlay on chart shows Avg. Ann. Total Return = 12.8%. Chart data description: Peak for Fed Funds Effective Rate over time shown was 6/30/81, at 19.1%. Peak for NPI return is most recent period, with 18.2%. Chart source: NCREIF, U.S. Board of Governors of the Federal Reserve System, Moody’s Analytics, Clarion Partners Investment Research as of October 2022. End chart description. See disclosures at end of document.

12.08.2022

Hike! The Herald Fed Sings

The trajectory of rate hikes by the Federal Reserve has had a meaningful impact on asset values this year. Historically,…

Two-column chart shows universe percentile for the Core Aggregate and Core Plus Aggregate indices by calendar year using rolling 5-year period. Chart subtitle: Most active fixed income managers have outperformed the Aggregate index over the last 20 years. Chart visual description: Y-axis crosses x-axis at maximum, and shows Universe Percentile from 0 to 100 going down in increments of 25. X-axis shows years from 2000 to 2021 and is labeled Rolling 5-Year Period Ending December 31. Core Aggregate columns are in dark grey and Core Plus Aggregate are in light green. Chart data description: 2021 column places Core Aggregate at 89th percentile and Core Plus Aggregate at 97th. The Core Aggregate ranked in a better percentile for only 5 of the years shown, as described in the text. Chart source: eVestment as of November 30, 2022. End chart description. See disclosures at end of document.

12.01.2022

Fixed Income Indexing: A Commitment to the Bottom

The equities market has experienced a tectonic shift from active to passive investing, with passive investors benefiting from index strength…

11.21.2022

An Investor’s Holiday Wish List

Hopefully not another year of coal In the spirit of holiday fun — and an effort to put 2022 investment returns…

Two-column chart numbers of rising stars and fallen angels yearly. Chart subtitle: The number of rising stars has outweighed the number of fallen angels so far this year. Chart visual description: X-axis years begin in 2011 and continue annualy through 2022 YTD (November 2022). Y-axis ranges 0 to 60. Each year has a column for rising stars in light blue and a column for fallen angels in dark teal. Chart data description: In 2022 YTD category, both columns match 2021’s counts, with 26 rising angels and 10 fallen angels. 2020 represented a peak for the period shown in fallen angels, with 51. Peak for rising stars was in 2014 at 39. For all years shown except 2016, 2017, and 2020, there were more rising stars than fallen angels. Chart source: J.P. Morgan, Moody’s Investors Service, S&P as of November 4, 2022. End chart description. See disclosures at end of document.

11.16.2022

Rising Stars are a Bright Spot in 2022

While 2022 has been an exceptionally challenging year, with both equities and fixed income down meaningfully, there are a few…

11.08.2022

Keeping the Lights On

While overall fundamentals for U.S. equity benchmarks have remained mostly resilient this year amid a painful repricing of risk assets,…

11.02.2022

Chinese Equities Down 17% in October

2022 has been a difficult year for Chinese equities, which are now down 43% year-to-date through October. In comparison, the…

More articles

Subscribe to Research Email Alerts

Research Email Alert Subscription

Research alerts keep you updated on our latest research publications. Simply enter your contact information, choose the research alerts you would like to receive and click Subscribe. Alerts will be sent as research is published.

We respect your privacy. We will never share or sell your information.

Thank You

We appreciate your interest in Marquette Associates.

If you have questions or need further information, please contact us directly and we will respond to your inquiry within 24 hours.

Contact Us >