Can't fill jobs, won't raise wages

Record job openings, limited compensation plans

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According to the NFIB survey, the share of firms having difficulty filling positions rose in April to a record high. While the share planning to raise compensation also rose, it remains lower than it was before the pandemic. Unless firms’ wage plans grow, the upcoming rise in inflation is likely to be transient, as the Fed is claiming.

Macro

The Job Openings and Labor Turnover Survey showed that the job openings increased by 7.9% MoM in March, to a record high of 8.1 million.

US small business price plans also rose in March. They would normally be consistent with higher core inflation, at least in the short term.

Markets

The media was generally blaming inflation concerns, ahead of the US CPI data today, for the weak day for equities. It was a weak day for most markets, although the North American indices recovered some of their losses in the afternoon.

Of the S&P 500 sectors, it was generally the cyclical sectors that performed the worst, with the key exception of minerals. Hard to see how the weakness in energy or financials fits in with the inflation concerns narrative, which would normally be worse news for those sectors with limited pricing power and high labor costs as a percent of their revenues.

The VIX rose to 21.8 yesterday, while the VVIX rose to 122.5. A rising VVIX, which is essentially the volatility of VIX itself, is sometimes a sign of even greater volatility ahead.

The rises in bond yields are more akin to what we might expect during a period of rising inflation expectations.

It is still the case that 5-year/5-year inflation-linked swaps are only a touch more than they were in 2018 in the US though.

And very long-run rates remain low.

Investors think the Fed will stick to its dovish message despite higher inflation - expectations for the Fed Funds rate have fallen over the past month.

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