October Economic and Market Review

Economic and Market Review

October 31, 2021

Labor Shortage Hinders Recovery

Severe labor shortages and supply chain disruptions continue to hamper industries throughout the country, elevating inflationary pressures for millions of Americans.

Employment costs for wages and salaries in the private sector rose 4.6% over the past year compared to 2.4% for state and government positions. Employers are having to raise compensation and pay incentives in order to attract skilled workers for the 10 million open positions nationwide. The competition for employees is enticing workers to quit their current jobs for higher paying opportunities.

Each month the U.S. Department of Labor releases employment data that includes how many workers are actually quitting their jobs. The data is considered a critical barometer of the labor market’s health and an indicator of economic growth. These same workers are also the consumers that the Fed monitors to determine if their confidence is allowing them to spend more, thus lifting economic growth. The most current data shows that the quits rate rose to 2.9, reaching the highest level ever.

Wages also benefit when more workers quit as employers tend to raise compensation in order to retain qualified employees. Rising wages can bode extremely well for worker and consumer confidence, a key ingredient for improving economic conditions.

Inflationary Woes Continue

Higher prices for gasoline and natural gas are expected to raise heating costs for consumers heading into the winter months. A spike in demand for natural gas is common every winter, driving prices higher as well as intensified this season due to supply issues. Crude oil prices reached levels not seen in seven years as a gradual increase in demand and supply constraints contributed to price pressures.

More economists are expecting current inflationary trends lasting longer than anticipated and not transitory as the Federal Reserve had initially suggested. Contributing to inflation are supply strain constraints and rising labor costs, as well as demand increases for energy and food.

Optimistically, emerging economies tend to endure inflation better as a younger workforce earns more as rising commodity prices benefit many emerging countries. Ideally, rising food prices can be mitigated as more crops and supply is gradually added.

Rising Mortgage Rates Raise Concerns Over Housing Supply

Rising mortgage rates in October increased concerns about housing affordability for millions of Americans. Limited housing supply and elevated home prices have been an issue for home buyers for over a year. The onset of rising rates is expected to exacerbate the issue, putting home purchases out of reach for many Americans.

The Federal Reserve is schedule to slow its pace of buying Treasury and mortgage backed bonds in November. It is still uncertain as to how this might affect interest rates and the bond markets.

Social Security Benefits Increase

Social Security recipients will see a 5.9% increase in benefit payments starting in January 2022. The increase is the largest since 1982, adding an average of another $92 per month to an average monthly benefit of $1,657 per recipient. The Social Security Administration bases benefit adjustments on the current inflation rate, measured by the Consumer Price Index. The COLA (cost-of-living adjustment) is based on the most recent inflation rate and revised each year. As of September 2021, there were 69.9 million Americans receiving benefit payments from the Social Security Administration.

Equities Remain Resilient

Major equity indices were up in October, with the Dow Jones Industrial, S&P 500 and the Nasdaq Indices all reaching new highs. Equities were resilient to supply chain constraints, inflationary pressures, and rising rates. Earnings were mixed as various companies struggled with lack of materials and components for products, affecting sales and revenue growth estimates.