Home Paul Ebeling Inflation for US Producers Grows as Services Wages Pick Up

Inflation for US Producers Grows as Services Wages Pick Up

by Paul Ebeling

#inflation #PPI #wages

Inflation is bubbling in America’s heartland as growing materials shortages turn into long delivery times leaving manufacturers struggling to keep pace with the fast growing economy.

As producers attempt to navigate supply-chain pot holes for the commodities necessary to produce their products, wage growth is coming alive.

A recent US Labor Department report shows the largest Quarterly increase in worker pay at companies since Y 2003.

The combination of higher labor and materials costs has lead to a pickup in consumer inflation at a time when monetary and fiscal policies are conducive to faster economic growth. And a growing number of consumer supply companies are already raising prices.

Fed Chairman Powell views the shortages in materials and supply-chain challenges as temporary, companies are saying the constraints will possibly extend into Y 2022.

Longer lead times are one of the clearest indications of the supply-chain challenges that producers face. Wait times of factories for production materials grew to 79 days in April, the longest in records dating back to Y 1987, according to the latest Institute for Supply Management data. The average delivery time of supplies for maintenance, repair and operations was also the longest in ISM data.

Such delays have inflated order backlogs to record levels capping a breakout in production growth.

The ISM’s monthly reports also provide a clear indication of a growing number of commodities in short supply.

Last November, purchasing managers listed just 8 materials companies were struggling to get their hands on, now 6 months later and it has expanded to 24. Aluminum, wood pallets and rubber-based products are new additions to the list.

All of that plus companies labor cost is accelerating as the lifting of VirusCasedemic restrictions leads to a broader pickup in economic activity.

The government’s latest employment cost index, a Quarterly measure of compensation, showed wages in the private sector climbed in Q-1 by the most in 18 yrs.

Despite an elevated unemployment rate, many firms have cited troubles finding qualified workers.

So, some are offering incentives like signing bonuses and boosting wages to attract applicants. Some 28% of small businesses reported raising compensation in a March survey by the National Federation of Independent Business.

Increasing vaccinations have also allowed more Americans to head back to their favorite restaurants or begin traveling again. For service providers, that means hiring more workers. That will only increase due to the pent-up demand.

But it’s been challenging to attract workers due to the ultra-generous jobless insurance and 2 latest rounds of aid/relief checks have given some workers the option to be selective about which job they take.

These factors may help explain a big increase in Q-1 wages for service providers. The 1.3% gainer was the largest Quarterly gainer in 20 yrs of record keeping.

Have a healthy day, Keep the Faith!

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