So It Turns Out The Job Market Really Can Be “Too Strong”...

So It Turns Out The Job Market Really Can Be “Too Strong”...
Theodora Lee Joseph, CFA

almost 2 years ago2 mins

The Russia-Ukraine conflict and China’s Covid lockdowns have been the main culprits of this latest bout of US inflation, making everything – especially food and energy – more expensive. But another major factor might be about to throw even more fuel on the fire.

The charts above – which are representative of almost every US sector – show that US job openings (the pink lines) have been outpacing hires (blue) since 2019, while the number of quits (green) has been climbing too. This combination has made it harder for companies to find and hire workers, forcing them to offer better salaries to win them over.

This might sound like good news, and you should probably charge into your boss’s office right now to ask for a raise. But it is a problem in the grand scheme of things: it’s leading to what’s called the “wage-price inflation spiral”, which happens when high inflation collides with a tight labor market. It’s when companies are forced to offer higher wages to attract workers, only to pass those costs on to customers in the form of higher prices in a bid to maintain their profits. That increases demand for higher wages, which pushes up costs, which pushes up prices, which pushes up wages, and on, and on…

Still, there are ways you can brace for this as an investor. For one thing, avoid labor-intensive industries – like food producers and clothing manufacturers – that generally struggle to pass on price increases without losing customers. You might want to turn toward automation and robotics companies instead, which stand to profit as companies look for ways to keep their labor expenses in check. You could invest in the iShares Automation & Robotics UCITS ETF (ticker: RBOD, expense ratio 0.4%) to gain exposure, or take your pick from a list of the industry’s other ETFs here.

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