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ECONOMICS
Bloomberg Businessweek
May 14, 2018
39
“few or no” qualiied workers for job openings. Yet
on May 8 the NFIB reported that in April the net
percentage of small-business owners who reported
improved earnings trends was the highest in the
survey’s history. “There is no question that small
business is booming,” William Dunkelberg, NFIB’s
chief economist, said in a statement. (Big compa-
nies are, too: First-quarter earnings for companies
in the S&P 500 are expected to be 24 percent higher
than a year earlier, Bloomberg calculated on May 9.)
Sectors with strong pay growth generally con-
front special circumstances. Those truck drivers
being ofered as much as $150,000? They’re being
hired by oil producers in the Permian Basin who are
desperate to get their crude to market. Hospitals,
whose median expenditures for contract labor rose
19 percent in the past year, face their own special
problems, according to John Morrow, a managing
director of Franklin Trust Ratings who analyzes hos-
pitals. People whose skills are in high demand and
work under temporary contract rather than sal-
ary can take full advantage of shortages for their
talents, according to Morrow. “This is a level of skill
that requires advanced-level training that involves
medicine, technology, and science, and all of those
things are costly,” he says.
An important sign that rising costs remain man-
ageable is that most companies haven’t passed
them along to customers. Walmart Inc., the nation’s
largest private employer, raised starting wages
to $11 an hour in January and announced annual
bonuses of as much as $1,000. But it’s cutting prices
to remain competitive with
Amazon.comInc. and
low-cost supermarket chains Aldi Inc. and Lidl
US LLC. The same goes for packaged-goods com-
panies. General Mills Inc. has acknowledged that
attempts to hike prices for its Progresso soup and
Yoplait yogurt ultimately hurt sales by driving shop-
pers to other brands. In freight transportation,
BNSF Railway Co. has picked up market share from
Union Paciic Corp. by underpricing it.
“We have to be a little bit cautious in infer-
ring that wage growth is going to be a major con-
straint for business,” says Gregory Daco, head of
U.S. macroeconomics for Oxford Economics Ltd.
While some economists warn that rising inlation
is a “late-cycle” phenomenon—i.e., a precursor
of recession—“we don’t have clear evidence that
we’re at the end rather than the middle of the
cycle,” says Michael Englund, chief economist of
Action Economics LLC in Boulder, Colo.
A key statistic to watch is unit labor costs, which
are wages adjusted for productivity. They rose at an
annual rate of 2.7 percent in the irst quarter. But
over the past year as a whole, the increase was only
1.1 percent. As long as companies’ unit labor costs
don’t rise faster than the prices they charge, tight
labor markets won’t be a problem.
…
But They Aren’t Fueling Inflation Yet
Annual growth in average hourly earnings
remains modest.
Consumer spending growth
, adjusted for
inflation, is weak.
The Fed’s favorite
measure of inflation
has
just reached its target.
3.5%
2.5
1.5
4%
0
6%
0
-6
4/2007
4/2018
2Q '07
1Q '18
4/2007
3/2018
-4
Excluding food and energy
DATA:BUREAU OF LABOR STATISTICS, NATIONAL FEDERATION OF INDEPENDENT BUSINESS, INSTITUTE FOR SUPPLY MANAGEMENT DIFFUSION INDEX ON
BUSINESS BACKLOG OF ORDERS,BUREAU OF ECONOMIC ANALYSIS’S MEASURE OF PERSONAL CONSUMPTION EXPENDITURES AND RELATED PRICE INDEXES