“The very difficult situation we find ourselves in”
In his testimony to Congress this past week, Powell stuck to his guns, once again asserting that the Fed has “an expectation that high inflation will abate” but admitted that it could face “a difficult tradeoff” should inflation remain well above target. As far as the data goes, there’s good news and bad news for the FOMC as it looks to avoid being forced to find a balance between inflation and employment.
As far as inflation is concerned, there appears to be little relief in sight as price pressures continue to dog the economy. Take the agricultural sector, for example. Cotton futures hit a nine-year high courtesy of weather, markets “catching some traders with substantial short positions”, and shipping constraints. Oat futures are at multi-year highs as the Canadian oat harvest was cut in size by drought and thanks to rising demand “as oat milk gains in popularity”. And even lumber, which had cooled off after its screaming run earlier this year, is staging a “late season rally”. What’s more, farmers see their input costs rise, echoing the situation other businesses are finding themselves in. As a recent article from the Wisconsin State Farmer explains, the prices of several major fertilizers, including urea and potash, are all “up 59% or more from 2020”.
There is, however, good news on the employment side of the ledger. Though Powell pointed out that slack remains, data continue to indicate improvements in the labor market. The ISM’s latest release saw their Employment Index had “returned to growth”, coming in at a milquetoast 50.2, but there were additional signs of strength. As Tim Fiore, ISM Manufacturing Chairman, wrote in his comments, “companies and their supply chains continue to struggle to meet demand due to the difficulties in hiring and a clear cycle of labor turnover, as workers opt for more attractive job opportunities”. Indeed’s latest data provides additional evidence of a strong labor market. According to a recent Hiring Lab article, job postings as of “September 24 were 43.6% above… the pre-pandemic baseline”. The report also highlighted the broadening of the recovery. In addition to finding that “job postings are now up almost as much in large metros as in smaller metros”, postings “have climbed in both in-person and work-from-home sectors”. Despite the general growth, the report did warn that “job postings flattened in some in-person sectors like food prep, hospitality & tourism, and sports as the delta variant surged”. This is corroborated by the general trend from Homebase’s data, which we’ve highlighted before, showing that both hours and employees working in Leisure and Entertainment are on the decline. Whether this decline is simply seasonal or a sign of something deeper, it appears that employers are undaunted, and human resources jobs “are far above baseline, as employers are eager to hire the people who will help them hire others”.
