Normal, but not healthy: Morning Brief
Yahoo Finance's Myles Udland, Brian Sozzi and Julie Hyman discuss rising wages and the winding economic path to recovery.
JULIE HYMAN: But first let's start with the morning letter, which was reasonable enough to look at inflation and the dates we were expecting at the time and which, as we talked about this morning, didn't necessarily come in hotter - much hotter than expected, but still, you know, definitely some heat. 3.8% was the increase in the core number over the previous year. In a monthly comparison we saw 0.7% for these numbers.
And Myles, as you wrote in the Morning Letter, is there this kind of process to find out if this is healthy or not? Is that ok or not? We spoke to Claudia Sahm about this last hour, and you quoted Neil Dutta as to whether it was OK or not, how this is going.
MYLES UDLAND: Yeah, I mean, Neil makes a really good point. And he sent a note a few days ago about that idea of the current economy and the job market, but that goes for the inflation data as well. The economy is behaving normally as we are in the early stages of a recovery from a very deep recession. But some of this behavior is not necessarily healthy. And I think Neil and others expect this state of health to normalize a lot over time.
You know, he's citing things like the end of unemployment in all states, expanded unemployment plans that are going to happen in September. And that's also going to coincide with a likely return to pretty much 98%, probably 100%, the normal school year across the country, which will alleviate many of those unhealthy dynamics we've seen specifically in the job market - women dropping out of college Workforce faster, which is particularly negative, as women have gained in the workforce faster than men in recent decades, and especially during the post-financial recovery.
But the normal parts of the cycle are rising inflation, rising prices as more demand comes into the economy, and more attitudes as the economy continues to accelerate out of this recession. And that's why I think a three-decade high in core inflation like we had this morning isn't necessarily the healthiest dynamic. If you are an economist and choose from a menu what is my ideal recovery, it's not your preferred way of seeing the economy come out of recession, is it? But it's a normal part of the process.
As demand increases rapidly and people gain more confidence in their economic condition, the real point of this crisis is that people will have more confidence in their ability to be healthy when they resume a wide range of services or activities as Jay Powell said and also how they are allowed to do these things. Because, you know, restaurant capacity was limited, travel was strongly discouraged, airlines didn't have that many flights, people didn't get on anyway, and so on and so on. These one-off events that Claudia was referring to create huge biases in the data that don't necessarily look the healthiest if we want to look at them in a vacuum.
But again, it's a normal part of the process. And we go back to the Chipotle news that I mentioned in the briefing this morning, it's normal and healthy, I think that actually applies to both, but it's normal for a company that has to pay workers more for what Chipotle has to increase its prices, not to increase its margins. Chipotle is only defending its profit margins against workers who make more money, and they are paying workers more money due to competition in the labor market, which is a normal part of a growth cycle.
And so a lot of interesting things happen in business again. The next few months will be exciting. I really think the next few years will be a fascinating time as we figure out what has and has not changed permanently. But again, this discussion of what a normal process is and what parts of that process look a little more abnormal, maybe unhealthy, to tell you, I just found it to be a really great phrase from Neil about how to think about some of these issues.
BRIAN SOZZI: Well, Myles, I love the Chipotle example because, let me run you through, let's say we're actually getting that magical 1 million headlining jobs for this month that a lot of people are looking for. That could mean even more labor shortages for Chipotle, and then they'll have to raise wages again. And then suddenly we're back to this debate. Is the inflation we're seeing really temporary?
MYLES UDLAND: Right, I mean, but look, I think I would argue and - without thinking about how the Fed is going to see this, and how the Fed would argue that, I think it's not as controversial that we are I all might agree that if overall wages are increasing faster than they have been in the last 20 years, and therefore some prices are higher as a result, right Julie, I think we can agree that this is a healthier dynamic in the world Economy rather no wage growth, no price growth, no one, you know, no nothing is happening, that was kind of drudgery that we saw in the first half of the last decade.
JULIE HYMAN: Yeah, I would say so for sure. I mean, especially on the wage side, that was really worrying. And I think that has all sorts of implications when other prices go up, but the kind of social unrest is perhaps too strong a word, but certainly the societal awareness of the gap between CEO salary and average worker salaries etc, and all of the implications about the conversation we've seen over the past few days about whether billionaire Americans are paying their fair share of the taxes, all of that, in my opinion, is part of that conversation, whether you're talking about the economic side or what I'm talking about equally interesting, from the social side, is people paying more and how much people are making.
MYLES UDLAND: Yeah, and I think you know, any change in the way things were, economically what we look at, secular stagnation and all of those things, a welcome - welcome problem, right? And we've talked about this in previous examples, if you were to go through all of your decisions around this time last year, you know what the economy would be like and what problems you would face, I think we have the best potential problems here, if we are talking about too much demand for goods and services and too much employers' demand for labor. Probably a better result than-- we all had conversations with friends, you know, April, May last year. It's like the world is going to end and I hope I got my job and it didn't get quite as bleak as it seemed. So it's always worth keeping this perspective in mind.
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