Yesterday ADP issued its monthly employment report showing a big jump in employment, a gain of 987,000 jobs.
Today, the Bureau of Labor Statistics reported that nonfarm payroll employment rose by 559,000 and the unemployment rate fell to 5.8%. We've made quite a comeback from the April 2020 peak of almost 15%! But we've still got some ways to go to get back to where we were just 15 months ago.
Ok, good news on the job front, but this post is about inflation. The sharp improvement in the employment statistics is yet another indicator of the rapid rebound in our economy. People going back to work means increased demand for goods and services. However, as a result of the pandemic, inventories are low and production rates have not yet returned to normal. Rising demand, low inventories and below normal production can only result in shortages and higher prices.
Here's just one example of what happens to prices when demand rises in a low inventory/low production rate situation - lumber. You can see the dramatic increase in lumber prices, up 50% over the last 13 weeks alone. Rising housing demand is driving the need for lumber while pandemic shuttered lumber mills struggle to ramp production. We're seeing this type of situation in many sectors of the economy - appliances, semiconductors, automobiles, housing, etc.
So until production can catch up with now rising demand, I suspect the inflation rate will remain a problem. And, of course, the White House wants to pump $trillions more into an already rebounding economy potentially putting the economy into overdrive and resulting in even faster rates of inflation.
What's all this mean to us as investors? Well, a little inflation can be good for stocks. But a lot of inflation? That's not so good. Stay tuned...
A Walk in the Woods
I went for a walk in the woods behind my house yesterday and came across this yellow lady's slipper growing near the path (not by accident, I planted it there many years ago). It comes up every year like clockwork. Just wish it would multiply...
