Dave, the plumber who saves us every six or so months when a leaking pipe, water heater, or toilet threatens to destroy our walls and ceilings, was here the other day. As usual he fixed the problem right away and charged us less than expected. We love this guy.
While he was working I asked him how business was going. He claimed to be swamped to the point of turning away jobs. I asked why he doesn’t hire more plumbers to leverage his client list. Because, he replied, there are no available plumbers: “If a plumber is unemployed today there’s a really good reason for it.” In other words the home maintenance part of the labor market is hot and getting hotter.
Today’s Wall Street Journal provides a broader confirmation of this anecdote:
Wages Rising at Small Firms
NFIB survey shows businesses hiring more workers, but not as many as they’d like.
Call them labor-force participation trophies, but they are very well-deserved. With many Americans still sitting on the economic sidelines, workers are increasingly earning raises from small businesses that can’t find qualified applicants for all the available positions. That’s the message of the latest National Federation of Independent Business jobs report, due out later today.
The February survey of owners of small firms finds solid job creation, and historically high numbers of businesses lifting wages to attract and keep talent. Survey respondents reported a seasonally adjusted average employment increase per firm of 0.22 workers. NFIB Chief Economist William Dunkelberg calls it “a strong showing” and adds:
“Labor markets are very tight, for both skilled and unskilled workers. To address this problem, a net 22 percent plan to raise worker compensation, historically high. Thirty-one percent (unchanged) reported raising compensation to attract or retain employees, the highest since December 2000, the peak of the last expansion. Only an increase in the size of the labor force and an increase in the participation rate can provide relief from the impact of labor shortages. Firms will be hiring workers with less than the desired skill levels, forcing them to invest more in training.”
As of January for the economy as a whole, the percentage of American civilians aged 16 years or older who were either working or seeking work was just 62.7%. This remains near the Obama-era low of 62.3% reached in 2015 and represents dreary 1970s-style participation in the labor force.
Hence the trophies in the form of higher wages for the workers who are both able and willing to participate. The NFIB finds that 34% of all owners reported job openings they could not fill and 22% of owners cited the difficulty of finding qualified workers as their most important problem, exceeding the percentage citing taxes or the cost of regulation.
As business owners continue to seek new workers, the NFIB finds hiring plans strongest in construction, manufacturing, transportation and communication. Mr. Dunkelberg calls it “an exceptionally strong outlook for job creation. The availability of qualified workers will undoubtedly moderate actual job growth.”
This is obviously good news for workers who’ve seen their wages stagnate since the 1990s. But it also means “wage inflation” is apparently about to become an issue. Because the Fed ignores rising prices for financial assets (that is, things that benefit the big banks and their favored clients) while focusing intently on grocery store prices and wages, a sudden spike in hourly pay puts extreme pressure on the Fed to raise short-term rates and sell off the bonds it bought to force long rates down during the Great Recession. The result? Interest rates might rise faster than most now expect.
A good interest rate to track is the 10-year Treasury yield, since so many other rates, including 30-year mortgages, key off of it. Already it’s up by about 100 basis points since last September. Hotter than expected wage growth will accelerate the trend.
Spiking interest rates translates into soaring interest expense for virtually everyone from governments that have to borrow to fund ongoing deficits and roll over maturing debt to home buyers who were pricing in a 3.5% mortgage when they started looking and are now confronted with 4.5% or higher. Put another way, everyone who has to borrow money is suddenly a lot poorer. Poetic justice for sure, but very bad news for financial market stability.
The irony is that expectations of rising interest rates are self-fulfilling because existing bond holders want to sell their bonds but potential investors don’t want to buy them – yet – and for the same reason: expectations of higher interest rates and thus lower bond prices.
Who in their right minds would buy bonds today?
We expect at least 4 rises, probably over 0.25% each this year.
With the US Debt and USD index falling, no foreigner wants our bonds.
Today’s bond holders could loose 35% of the value if rates go back to “normal”
Exactly. Just the number of new Treasury issues to fund the deficit may force rates even higher than that, thus forcing the Fed to rollover its stash and not let them mature. It could get interesting – no pun intended.
Speaking of wage inflation, I was a little surprised J. R. suggested that his plumber hire more plumbers. My business advice to small, independent business types like that is to raise THEIR OWN prices. That tends to generate the same or more income for less work (after all high-income earners need time to shop) and it cuts down on the stress of having to turn down work, disappoint people, and getting bitched at for not being at three places at once.
Also, take time to lower cost. Most small business don’t manage expense.
A small business can lower the price of fuel by 10% to 18%.
Look for innovation or ways to cut overhead, for example:
http://www.MetalC2.com
Bruce, come on, I’m not gonna tell my plumber to raise his rates. He’s perfect just as he is!
I know. I thought about that after I posted.
But, then again, what goes around comes around, and if he actually took your advice and it worked for him then he probably would never raise his prices on YOU. Not to get too serious, but in one way or another you would be “rewarded” for your magnanimity and knowledge.
Agreed, if he grandfathers in his existing customers that would be okay.
But John, you’re just swimming in money, right? Time to share the wealth, especially with your favorite plumber. Money is just flowing like water out the spigot.
Not Dave, you’re right, I’m being selfish. But having two kids in college is a pretty good excuse 🙂
The Government Census for Commute to Job was eye-popping. 25% have a round-trip of over 50 miles. That doesn’t include Super-Commuters, 12% that sleep in the car rather than go home one or more night a week.
Why? To afford homes. New job? Can’t sell home and move 30 miles.
A computer programmer had a job offered 52 miles away that required on-site for $35 an hour. She took a job at Costco two blocks away for less money. Add it up, it paid the same.
Computer professionals have seen wages drop 38% since President Obama took office.
Remember President Obama announced 4 Technology CZAR positions?
These bozo’s are still on Trump’s executive payroll!
When an employer wants to pay $35 / hr on a W2, anyone that is offered $37 ten miles closer will jump and not even bother calling the old company. One bank hired a staff of 20 for a project. They showed up day-after-day to be told to go home without pay, the project was waiting for funding …. 5 weeks! They treat technical and computer professionals this way today, then “whine” that they can’t find good workers.
The bottom 60% of Wage Earners total compensation has not kept up with even the 2% fake Inflation for the last 7 years.