Wages are rising, but can they keep up with inflation?
In the tug of war between wage growth and rising prices, it is not yet clear who is winning. It could matter for the Federal Reserve.
As gas prices rise, employees are demanding either higher pay or work-from-home options to cover the higher cost of commuting.Credit…Jutharat Pinyodoonyachet for The New York Times
American workers are taking home bigger paychecks as employers pay up to attract and retain employees. But those same people are shelling out more for furniture, food and many other goods and services these days.
It is not yet clear which side of that equation — higher pay or higher prices — is going to win out, but the answer could matter enormously for the Federal Reserve and the White House.
There are a few ways this moment could evolve. Wage growth could remain strong, driven by a tight labor market, and overall inflation could simmer down as supply chain snarls unravel and a surge in demand for goods eases. That would benefit workers.
But troubling outcomes are also possible, and high on the list of worries is what economists call a “wage-price spiral.” Employees could begin to demand higher pay because they need to keep up with a rising cost of living, and companies may pass those labor costs on to their customers, kicking off a vicious cycle. That could make today’s quick inflation last longer than policymakers expect.
The stakes are high. What happens with wages will matter to families, businesses and central bankers — and the path ahead is far from certain.
“It’s the several-trillion-dollar question,” said Nick Bunker, director of research for the hiring site Indeed.
Cumulative Change in Employment Cost Index Wages and Salaries From 2016
For now, wage growth is rapid — just not fast enough to keep up with prices. One way to measure the dynamic is through the Employment Cost Index, which is reported by the Labor Department every quarter. In the year through September, the index’s measure of wages and salaries jumped by 4.2 percent. But an inflation gauge that tracks consumer prices rose by 5.4 percent over the same period.
A different measure of pay, an index that tracks hourly earnings, did rise faster than inflation in August and September after lagging it for much of the year.
And an update to that gauge on Friday showed that wages climbed 0.4 percent in October, which is roughly in line with recent monthly price increases. Over the past year, that measure is up by 4.9 percent. But the data on hourly earnings have been distorted by the pandemic, because low-wage workers who left the job market early in 2020 are now trickling back in, jerking the average around.
The upshot is that the tug of war between price increases and pay increases has yet to decisively swing in workers’ favor.
Whether wage gains eventually eclipse inflation — and why — will be crucial for economic policymakers. Central bankers celebrate rising wages when they come from productivity increases and strong labor markets, but would worry if wages and inflation seemed to be egging each other upward.
The Federal Reserve is “watching carefully,” for a troubling increase in wages, its chair, Jerome H. Powell, said on Wednesday, though he noted that the central bank did not see such a trend shaping up.
Recruiters do report some early signs that inflation is factoring into pay decisions. Bill Kasko, president of Frontline Source Group, a job placement and staffing firm in Dallas, said that as gas prices in particular rise, employees are demanding either higher pay or work-from-home options to offset their increased commuting costs.
“It becomes a topic of discussion in negotiations for salary,” Mr. Kasko said.
But for the most part, today’s wage gains are tied to a different economic trend: red-hot demand for workers. Job openings are high, but many would-be employees remain on the labor market’s sidelines, either because they have chosen to retire early or because child care issues, virus concerns or other considerations have dissuaded them from working.
Grocery store managers in Dallas are earning as much as $175,000 in base pay compared to $125,000 before the pandemic, Mr. Kasko and his colleagues said, and employees are being nabbed away from firms like his for six-figure-salary recruiting jobs at corporations.
Emily Longsworth Nixon, 27 and from Dallas, is one of Mr. Kasko’s employees. She herself is fielding five or six messages each day on LinkedIn trying to lure her away, she said, and the tight labor market has upended how she does her job.
She tried to recruit a woman to an executive assistant position at a technology company that would have given her a $30,000 raise — and saw the candidate walk away for a counter offer of no additional pay but three work-from-home days each week.
“After that, I had my tail between my legs for a couple of days; I had never thought to ask that,” she said, adding that employers need to know their candidates like never before as workers flex their power, taking home raises and other perks. “Before Covid, it was an employer-driven market.”
Those in-demand workers could end up being better off in the long run, should their pay continue to chug higher even as supply chains heal and prices for used cars and couches moderate, allowing them to afford more.
Pay gains might also become more sustainable for employers as virus concerns fade and employees trickle back from the labor market’s sidelines.
And even if rapid wage increases persist, it is not absolutely the case that employers will be forced to drastically raise prices. Businesses could stomach a hit to their profits instead, or they could invest in technology that improves worker productivity.
If fewer waitresses can sell the same number of dinners because customers are ordering from QR codes, for instance, employers will have leeway to pay more without taking a hit to their bottom line.
Investment in automation has already moved up sharply by one metric, with orders of robots in the second quarter of 2021 up 67 percent from a year earlier, with demand spanning pharmaceutical industries, cars and electronics, according to the Association for Advancing Automation.
“Companies can’t find people, I don’t care what the industry is,” said Jeff Burnstein, president of the association.
But a happy outcome is not guaranteed. If today’s high prices do drive tomorrow’s wage negotiations and set off an upward spiral, the result could be a longer period of high inflation that prods the Fed to raise interest rates to tamp down demand and cool off prices, slowing the economy and possibly even sending it back into a recession.
A scenario like that hasn’t taken place since the 1970s and 1980s. But a situation like the pandemic lockdowns and subsequent reopening has never happened at all.
“We haven’t seen a wage-price spiral for decades, but we haven’t seen inflation like this for decades, either,” said Jason Furman, a Harvard University economist and former economic adviser in the Obama administration, calling the possibility of a wage-driven spiral “an open question.”
Wall Street’s string of back-to-back gains stretched to a seventh day on Friday, with the S&P 500 pulled further into record territory by companies that stand to gain from the fading of the coronavirus pandemic.
The S&P 500 rose 0.4 percent, bringing gains for the benchmark index to 2 percent for the week, its best weekly showing since June.
Travel and tourism stocks, bellwethers of sentiment about the pandemic, led the gains. The online travel agency Expedia was one of the best performing stocks in the S&P 500, climbing more than 15 percent, after it reported earnings on Thursday that were better than expected. Also sharply higher were shares of the event promoter Live Nation Entertainment, Carnival, and Delta Air Lines.
The flip side of the rally was that shares of companies that have profited during the pandemic — largely as people were homebound or discouraged from large gatherings — fell sharply. Notably, shares of the home fitness company Peloton plunged 35 percent after the company cut its forecasts for sales and profit, noting that it underestimated the impact that the reopening of the economy would have on its business.
Zoom Video Communications fell 6.2 percent, while Netflix fell 3.4 percent.
One trigger for Friday’s moves was news from the drugmaker Pfizer that its pill to treat Covid-19 had been found to be highly effective at preventing severe illness among at-risk people who received the drug soon after they exhibited symptoms. It’s the second such treatment in development, with a similar offering from Merck awaiting federal authorization.
Pfizer’s shares rose more than 10 percent, while those of Merck fell by nearly the same amount. Shares of the vaccine maker Moderna slid 16 percent, adding to a sharp loss from earlier in the week that had come after the drugmaker reported sales of its coronavirus vaccine — which is Moderna’s only product — that fell short of Wall Street’s expectations.
Investors also heard good news about the economy on Friday, as the government reported that employers in the United States added 531,000 jobs in October, a sharp rebound from the prior month and a sign that employers are feeling more optimistic.
Economists polled by Bloomberg had been looking for a gain of 450,000 jobs. The October gain was an improvement from the 312,000 positions added in September — a number that was revised upward on Friday.
President Biden said an October jobs report that showed a sharp rebound in hiring signaled growing momentum for the economy and progress in combating the pandemic, a welcome sign for an administration grappling with recent political setbacks.
“America continues to add jobs at a record pace,” Mr. Biden said. “Our economy is on the move.”
The American economy added 531,000 jobs in October, the Labor Department said on Friday, a sharp rebound from the prior month and above the 450,000 jobs that economists had been predicting.
The unemployment rate declined to 4.6 percent, from 4.8 percent. Yet the labor force participation rate, a measure of how many people work or are actively looking for jobs, barely budged in October, suggesting that millions of workers are not yet returning to the job market. That rate has been holding steady for months at 61.6 percent, down 1.7 percentage points from its February 2020 level.
Still, the drop in unemployment was enough to buoy a president whose party is reeling from off-year election losses, including in Virginia, where voters elected a Republican, Glenn Youngkin, as the next governor.
Mr. Biden pointed to the drop in unemployment as a “sign we’re on the right track,” adding that new jobless claims have fallen for the past five weeks.
“Not only are more Americans working, working Americans are seeing their paychecks go up,” Mr. Biden said.
The president credited the gains to a stimulus package passed earlier this year. Yet while Mr. Biden has been claiming credit for labor market progress, much of the increase is simply a rebound from a huge pandemic hit to employment. Employment fell by more than 22 million jobs at the start of the pandemic, and the economy has recovered about 80 percent of those positions.
The release of the report came a day after the administration set a Jan. 4 deadline for large companies to mandate coronavirus vaccinations or start weekly tests for workers, setting off concern among some labor groups and companies who say the requirement may make it difficult to bring employees back to work amid a labor shortage.
Karine Jean-Pierre, the White House deputy press secretary, said on Thursday that the vaccine requirements will encourage employees to return to the work force because they will not be as afraid to contract the coronavirus. Mr. Biden also said the recent authorization of vaccines for children age 5 to 11 would help keep schools open, improving the economy as a result.
“For our economy to recover, we need to keep driving vaccinations up and Covid down,” Mr. Biden said. The president used the remarks as another opportunity to encourage Americans to get vaccinated. He pointed to Pfizer’s announcement on Friday that its pill to treat Covid-19 had been found in a key clinical trial to be highly effective at preventing severe illness among at-risk people as another sign of optimism.
Persistent shortages are dragging down the German economy, Europe’s largest, as companies struggle to fill orders because the necessary parts or raw materials are not arriving from abroad.
Surveys and data released this week indicate that the ongoing crunch in the supply chain is the main factor slowing Germany’s manufacturing powerhouse, causing the government to scale back its forecast for economic growth for 2021. Many economists are now predicting that the situation won’t improve until well into 2022.
Industrial production shrank by 1.1 percent in September compared with the previous month, according to data released on Friday by the Federal Statistics Office. The drop was led by a fall in the production of mechanical, electrical and data processing equipment.
More than 90 percent of all manufacturers in the automobile and electrical equipment industries said that their production had been hampered by a lack of supplies, according to a survey released Wednesday by the Ifo Institute. Some economists are predicting the shortages could result in a “bottleneck recession.”
And last month the German government cut its projection for economic growth for the year to 2.6 percent, down from a 3.5 percent estimate in April, citing supply chain issues and rising energy prices.
“There will not be the final spurt we had hoped for,” said Peter Altmaier, the minister of economy in Chancellor Angela Merkel’s caretaker government.
But the government predicted the economy would gain momentum in 2022, and lifted its estimate for next year’s growth to 4.1 percent from 3.6 percent, reflecting more shipments of microchips and raw materials.
That projection reflects the expectation that a backlog of orders will be able to be filled in the coming months. Data released on Thursday showed industrial orders rebounding less than expected at an increase of 1.1 percent in September, after an unexpectedly large drop in August.
Given the demand, some economists believe that with an increase in shipping predicted for the first part of next year, the German economy is positioned to improve, although it will not be immediate.
“There is a potential for an upside,” said Carsten Brzeski, an economic analyst with ING Bank. “Only a small improvement in industrial production is required to see positive growth.”
One of the biggest threats, however, remains the coronavirus pandemic.
Germany finds itself facing a fourth wave of infections, with a record number of new infections, 33,949, recorded in a 24-hour period on Thursday. That could prevent people from going out shopping or dining, endangering a projected increase in private consumption that has proved one of the bright spots in the German economy, and hitting the country just as the holiday period arrives, a high point for consumer spending.
Millions of employees remain on the job market’s sidelines and are only slowly trickling back — posing a serious challenge for the Federal Reserve as its policymakers try to assess how far the United States economy remains from their full employment goal.
The labor force participation rate, a measure of how many people work or are actively looking for jobs, has been holding steady for months at 61.6 percent, down 1.7 percentage points from its February 2020 level.
Participation of people in their prime working years is ticking up gradually, rising to 81.7 percent in October from 81.6 percent in September, but that too remains depressed compared with the rate before the pandemic. In February 2020, 82.9 percent of those 25 to 54 years old were in the labor force.
Fed officials had initially hoped that the labor market could return to the participation and employment levels that prevailed before the health crisis. But more than 20 months into the pandemic, as anecdotes about early retirements abound and many employees seem to be reassessing their work lives, it is less clear what will happen next. The Fed sees room for further improvement, but officials have also expressed humility about their expectations.
“Now the temptation at the beginning of the recovery was to look at the data in February of 2020 and say, well, that’s the goal,” Jerome H. Powell, the Fed chair, noted during a news conference this week, when asked about what constituted full employment.
“I think there’s room for a whole lot of humility here as we try to think about what maximum employment would be,” he later added.
It is not clear what is keeping many workers away at a time when job openings are plentiful. It could be what is popularly called the Great Resignation: People shaken by the pandemic are reassessing their lives and livelihoods. It might be that the recent wave of Delta variant coronavirus infections sent many workers home. Child care shortfalls and fear of infection are almost certainly keeping some workers away temporarily, and early retirement may have taken others out of commission more permanently.
But it is an open question when those headwinds will fade, and which ones will prove temporary versus more permanent.
Mr. Powell noted, for example, that officials had expected the reopening of schools and the lapsing of expanded unemployment insurance would drive a wave of workers back into the labor market. That has not shaped up yet, “interestingly,” he said.
“Ideally we would see further development of the labor market in a context where there isn’t another Covid spike,” Mr. Powell said this week.
The biggest question of the pandemic labor market is simple but crucial: When will the workers come back? For many younger people, the answer appears to be “now.”
The overall participation rate, which measures the share of people employed or looking for jobs, has muddled along for months — but that hides important differences across age groups. For younger workers, participation ticked up solidly in October, data released Friday showed.
About 71.3 percent of 20- to 24-year-olds participated in the job market last month, up by 0.7 percentage points in September for the biggest gain among the standard age cohorts that the Bureau of Labor Statistics reports — and the highest point the rate has touched since the start of the pandemic. The rate also increased among workers 25 to 34 years old, climbing 0.4 percentage points to 82.3 percent, though that matched levels seen over the summer.
Progress among young workers came in stark contrast to what was happening among their older counterparts. For people above the age of 55, labor force attachment actually fell in October. Participation for that age group dipped to 38.4 percent from 38.6 percent the prior month, and has been hovering near its lowest levels since 2007.
Although young people are coming back to the job market more quickly than their elders, they are still taking part in the labor force in far smaller numbers than they did before the onset of the pandemic in the United States in March 2020. Participation is depressed by 1.5 percentage points for 20- to 24-year-olds, 1.3 percentage points for 25- to 34-year-olds and 1.6 percentage points for those 30 to 34.
Only teenagers are more likely to work or look for work today than they were before the coronavirus struck.
Among gender groups, men in their prime working years had no overall change in participation in October, while women’s participation ticked up slightly for the 25-to-54-year-old group. Even so, women are comparatively less likely to work than before the pandemic.
Economists are watching whether women, middle-aged adults and even some older workers will come back as the latest wave of virus fades. Employers regularly complain that they are struggling to fill jobs, which is weighing on their ability to sell restaurant meals or produce furniture. They are lifting wages to try to lure workers back, but it is unclear when — or whether — that will succeed.
If many workers were to remain on the sidelines, either because they have chosen to retire or because they have found a way to subsist without formal employment, it will leave families with fewer paychecks to spend and the economy with less room to grow.
“The reason workers aren’t filling jobs today seems to stem more from the decision to drop out of the work force entirely,” economists at S&P Global wrote in a recent analysis. “It remains to be seen whether potential workers will be lured back into the work force, stabilizing wages.”
After CO2 is pumped into the ground through the injection wells, it will chemically react with basalt and turn to rock in two or three years.Credit…Sigga Ella for The New York Times
A team at Climeworks, a Swiss start-up, runs Orca, the world’s biggest commercial direct air capture device, which sucks air into steel catchment boxes where carbon dioxide or CO2, the main greenhouse gas behind global warming, chemically bonds with a sandlike filtering substance.
When heat is applied to that filtering substance it releases the CO2, which is then mixed with water by an Icelandic company called Carbfix to create a drinkable fizzy water. It can also be pumped into the ground through wells, where it will chemically react with basalt and turn to rock in just two or three years.
It is a permanent solution. Once carbon turns to rock it is not going anywhere. READ THE ARTICLE ->
On Thursday, the Occupational Safety and Health Administration said that companies of 100 or more employees have until Jan. 4 to ensure all their workers are either fully vaccinated or submit to weekly testing and mandatory masking.
We know you have lots of questions, like: Will the vaccine-or-test requirements apply to remote workers? Do workers who recently tested positive for the coronavirus still have to comply? Is it legal for employers to require vaccines without giving workers an option to instead submit to testing?
We’ve got answers to those questions and more here. Or ask your own question below.
Citing falling coronavirus cases and higher vaccination rates, Apple will stop requiring customers to wear masks, regardless of their vaccination status, starting Friday at about 100 stores in a handful of states, including California, New Jersey, Massachusetts and Florida, the company told retail employees in an internal memo on Thursday. “The positive trends in vaccinations, testing and case counts for your area have made this change possible,” the company wrote in the memo, which was viewed by The New York Times. Employees will still be required to wear masks because they have “longer interactions in store,” the company said, “and are in close proximity throughout the day.”
A lawsuit filed on Thursday accuses Facebook of antitrust violations in trying to squash Phhhoto, an now-defunct photo app. The suit claims that after Mark Zuckerberg, Facebook’s chief executive, and other Facebook executives downloaded their app and approached them about a partnership, no deal materialized. Facebook instead started a competing product that mirrored Phhhoto’s features. Facebook also suppressed Phhhoto’s content within its photo-sharing app, Instagram, the suit says. READ THE ARTICLE ->
The humiliating details of bad investments are rarely displayed prominently to the public. But they have been laid bare in recent weeks at the trial of Elizabeth Holmes, 37, who ran the blood-testing start-up Theranos and who faces a dozen counts of wire fraud and conspiracy to commit wire fraud. Now in its ninth week, Ms. Holmes’s trial has offered an especially clear picture of the many ways sophisticated investors can be swept up in the hype of a hot start-up, ignoring red flags that look obvious in hindsight.
Lisa Peterson, who handles investments for Michigan’s wealthy DeVos family, said she did not visit any of Theranos’s testing centers in Walgreens stores, call any Walgreens executives or hire any outside experts in science, regulations or legal matters to verify the start-up’s claims. In 2014, the DeVos family invested $100 million into the company.
That behavior still resonates today, as investors compete to pour money into Silicon Valley start-ups, which have been in a frenzied state of record-breaking fund-raising. READ THE ARTICLE ->
The Bank of England said it would change the rules for its corporate bond purchases to meet green goals, including permanently excluding debt from coal mining companies. The move is the latest in a spate of initiatives by financial institutions that they say will transform the financial system to support net zero-carbon targets.
The central bank said Friday its purchases would be “tilted” toward strong climate performers, and all companies would need to meet certain climate criteria to have their bonds considered for the corporate bond-buying program, such as meeting climate disclosure requirements and public emission reduction plans for energy and utilities companies. The new rules will come into force later this month.
Bonds from coal mining companies were not previously eligible, but the central bank said the changes announced on Friday meant they never could be. The new rules also mean companies that use thermal coal in their activities have to be on track to phase out coal by 2025 and already use renewable energy to be eligible.
Over time, the eligibility criteria will become more stringent and the central bank could divest from companies that do not meet those goals, it said.
The central bank holds 20 billion pounds, or $27 billion, in corporate bonds, half of which were purchased as part of the bank’s emergency response to the pandemic. Bond purchases will need to be in line with the central bank’s targets of reducing the “carbon intensity” of its holdings by 25 percent by 2025, measured by greenhouse gas emissions, and net zero emissions by 2050. Net zero carbon emissions is the internationally agreed goal to restrict global temperature rise to 1.5 degrees Celsius above preindustrial levels.
Later this month, the Bank of England will start reinvesting the proceeds from maturing corporate bonds to ensure the stock of bonds is maintained at GBP20 billion. Holdings had slipped to GBP19.45 billion this week, meaning the bank will need to buy at least GBP550 million of bonds.
“Incentivizing change is more powerful than immediate divestment to encourage the significant shifts in behavior required across the economy in order to achieve net zero by 2050,” Andrew Bailey, the governor of the bank, said in a statement.
The Bank of England holds a small slice of the British investment-grade corporate bond market and the bulk of its holdings — GBP875 billion — are in government bonds. But the bank said it hoped its plan could be used as a guide by firms to push for emissions cuts in their investments. Earlier this week, some of the world’s largest asset managers, banks and insurers said they would use their combined $130 trillion in assets to help the world meet its goal of net zero carbon emissions by 2050.
In March, the British government updated the central bank’s objectives to include green and sustainable goals.
There is still debate internationally about what role central banks should play in addressing climate change, especially if it involves changing the allocation of investments and loans, but the banks are spending more resources studying the potential impact of climate change on financial stability and the economy. Central banks, including the Bank of England, have announced plans to stress test the banks they supervise against climate risks.