Today’s theme is food and labor. We have reports from Campbell Soup that high labor costs are pinching profits and inflation doesn’t seem to be abating. United Natural Foods reported better than expected earnings. Demand for product is plentiful everywhere for food whether it be at the grocer or restaurant.
On the flip side, the insatiable appetite for labor just can not be met. Bloomberg reports that one million workers are needed in the UK to meet demand for labor right now.
In the US, the latest Bureau of Labor Statistics JOLTS report shows 11 million job openings despite a reduction in quits. This number has grown from the month prior. BLS reports:
The number of job openings increased to 11.0 million on the last business day of October, the U.S. Bureau of Labor Statistics reported today. Hires were little changed at 6.5 million and total separations edged down to 5.9 million. Within separations, the quits rate decreased to 2.8 percent following a series high in September. The layoffs and discharges rate was unchanged at 0.9 percent. This release includes estimates of the number and rate of job openings, hires, and separations for the total nonfarm sector, by industry, by four geographic regions, and by establishment size class.
BLS.GOV
The Wall Street Journal reports that Amazon has been disrupting pay scales all throughout the places where Amazon has a presence. Amazon hourly wages often start at $16+/hr and if local businesses aren’t offering a similar competitive wage then they will likely lose out on labor. This issue isn’t limited to Amazon, Bank of America announced that it would boost wages to $25/hr by 2025 but at the rate of inflation right now, that may change to 2022 or 2023. Costco recently announced $17/hr minimum wage at it’s stores.
Despite all of this, people are still struggling to buy groceries and this is at a time that the US Government and various states have been handing out free money, offered rent moratoriums, and other social programs during the Covid lock downs.
The Federal Reserve recently announced it would taper its bond buying program which would presumably let things return to an “old” normal but we are skeptical that any of that will happen. We expect inflation to continue on through 2022 and 2023.
What most of the media doesn’t seem to understand is that we are in a war against a virus. Covid doesn’t have bombers and infantry decimating cities and soldiers but the effect is the same. It is causing fear, lock downs, reduction of manufacturing, transportation, distribution, and delivery of goods and services. Covid has killed over 750k in the US and the war is not yet over. Covid has forced many close to retirement to quit and stay home. Covid has also forced those that are health compromised to quit or do different work too.
The war isn’t over because despite high percentage of vaccination in the United States, there are still 7.5 billion people elsewhere in the world. The virus will continue to mutate and cause periodic panics,and some of those panics will be unwarranted but others may very well be warranted.
If you aren’t scared enough yet, let’s add one more thing. Over the next 8 years, millions of boomers will retire from the workforce. The high inflation, lack of goods and services, and general misery is just a snapshot of how miserable the world will be in 2030 without some significant changes. Large corporations with deep pockets will be able to continue to raise wages and vacuum up labor for their businesses, the big pain points will be for small businesses that won’t be able to compete unless their business models are built around minimal labor.
In the meantime, it would be best to build a defensive portfolio of dividend/income and growth stocks.
If you have been paying attention, you know some of what is in our portfolio so far. Stay tuned to learn more.
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