“Firms have been handling these higher input costs, higher health care premium costs, by not hiring as much as they would. We saw this in earnings calls. And the interesting irony is that we are seeing spectacular earnings growth. Firms are handling that via operational efficiency, which is a code word for not hiring in our analysis.”
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Asked whether stubborn inflation explains sluggish US hiring, Wong links firms' cost pressures to the low-hire, low-fire labour market, and warns the arrangement may not be stable.
Lower than what you would want to keep the unemployment rate steady.
…say, the labor market has been stuck at these relatively low growth numbers, while at the same time we continue to see inflation well above the Fed's 2% target. Is that part of the reason why hiring has been so sluggish, just that price pressures have been as elevated as they've been all this time?
That is a great observation, Nathan. And I wish more people would have made that observation you made, because there is actually a connection to firms hiring versus the cost that they're dealing with. So one way that firms have been handling these higher raw material costs and Input costs, higher health care premium costs is by not hiring as much as they would. We saw this in earning calls. And the interesting irony is that we are seeing spectacular earning growth, right? In the last quarter and so far, this quarter in the earning season, the firms are still reporting very strong BITs. And so how is it that firms are not hiring? Well, it's because exactly that they're also all reporting very strong input cost growth and firms are handling that via operational efficiency, increasing operational efficiency, which is a code word for not hiring in our analysis. So I think this low hiring, low firing environment is not necessarily. A stable environment, either going forward, inflation eases, then firms will even have more spectacular earnings and they will hire more because profits have increased. But that is conditional…
So how does all this factor into what the Fed could be thinking as it gets closer to its December decision? There's been so much focus, of course, on getting inflation back down to target. How does this sort of tepid labor market factor into what the Fed could be thinking going forward?
What would move the dial on them going ahead with the hikes is if unemployment rates stay steady at 4.2% as it is right now. However, if unemployment rate goes to 4.3, 4.4, which is what the models would predict, then I think that the risks of the current market odds of a hike in December is…
Okay, Anna, thank you for this. Good to have you on with us. That's Anna Wong, Chief U.S. Economist for Bloomberg Economics. Let's take a look now at some stocks-making news in the week ahead. I'm Nathan Hager, joined by Bloomberg earnings reporter Chloe Mellie, because we've got More earnings…