$15 minimum wage would add to inflation pressures

We suspect that President Joe Biden’s plan to more than double the minimum wage within four years would have only a minimal impact on GDP. While there would almost certainly be some job losses as a result, we expect most of the adjustment would come via prices, adding to the upside risks to inflation over the coming years. But the big uncertainty here is how the pandemic would influence the outcomes since minimum wage hikes would affect the sectors hit by virus-related restrictions hardest.
Michael Pearce Senior US Economist
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US Data Response

Industrial Production (Sep.)

The 1.3% fall in industrial production in September partly reflects a temporary hit to mining and chemicals output from Hurricane Ida and a drop in cooling demand, as the weather returned to seasonal norms. That said, most of the 0.7% drop in manufacturing output is due to worsening shortages, particularly of semiconductors, which will hold back production for some considerable time.

18 October 2021

US Economic Outlook

Whiff of stagflation gets stronger

The whiff of stagflation is getting stronger as shortages worsen, leading to surging prices and weaker real GDP growth. Shortages of goods and intermediate inputs will eventually ease, although not for at least six to 12 months. But the drop in the labour force appears to be more permanent, which suggests the pandemic could have a long-term scarring effect on potential GDP after all. We now expect GDP growth to be 2.7% in 2022 and 2.0% in 2023 and we expect CPI inflation to be around 3.0% in both years. We assume the Fed will focus on the weakness in the real economy rather than the sustained overshoot in inflation, however, and are forecasting only two interest rate hikes in 2023.

18 October 2021

US Economics Weekly

Labour force exodus shows no sign of reversing

This week brought more news that acute labour shortages and the resulting surge in wages are rapidly feeding through into the most cyclically sensitive components of the consumer price index.

15 October 2021

More from Michael Pearce

US Economics Focus

Labour shortages will last well into 2022

The widespread labour shortages evident in the survey data and job opening & quit rates are only partly due to transitory factors, including enhanced unemployment benefits, childcare constraints, and virus fears. Limited international migration, the wave of retirements and mismatches in the labour market appear to be playing a bigger role and will last well into 2022. That will put sustained upward pressure on wages, which is a key reason why we expect core inflation will average 2.5% over the coming years.

29 June 2021

US Economics Weekly

Lasting price pressures building

The continued surge in prices last month was again mostly concentrated in sectors reopening or facing intense supply constraints, which allows the Fed to stick with its “largely transitory” story for now. But with signs of cyclical price pressures building and the extremely strong job openings and quits figures pointing to stronger wage pressures, we believe the Fed will eventually have to acknowledge that inflation will remain elevated for much longer.

11 June 2021

US Data Response

ISM Manufacturing Index (May)

While the headline ISM manufacturing index edged up to 61.2 in May, from 60.7, the main takeaway from the release was that shortages of workers, and not just raw materials, now appear to be playing a key role in holding back production and pushing up prices.

1 June 2021
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