10 Jul Labor Force Shortages Pushing Wages Higher
Stocks are climbing higher this morning, making this the 7th day of gains out of the last 8 trading sessions. The continued optimism has been fueled by expected corporate profits to be announced in the days to come as earnings reporting season is upon us. With corporate tax cuts now impacting corporate bottom lines, we should see strong results overall. It seems that the primary challenge that companies are facing now is a lack of skilled labor to fill demand. In fact, the National Federation of Independent Business (NFIB) reported today that the ‘Positions Not Able to Be Filled’ component of their report rose to the highest level on record, which is a 45 year high. When demand outpaces supply, you can expect to see higher prices. In this case, rising wages.
One of the key recession indicators that we talk a lot about here is the ‘yield curve.’ Once again, this has narrowed even more and is flatter than it has been in over a decade. Remember, as the Fed continues to raise short term interest rates, this will be more of a concern. If longer term rates fail to keep pace, the yield curve will eventually become inverted. History shows nearly a 100% chance of this precluding a recession. I feel this is a strong likelihood and that we will see a recession by 2020. At that point, rates will likely improve from where they are at the time and we could see another refinance wave hit the market. So consider this when deciding whether or not to pay points to buy down an interest rate. It may not be in your best interest to do so; it rarely is.
With bonds still under pressure, we will maintain a locking bias.