Revisions to the seasonal adjustment factors have pushed initial claims to fresh secular lows in the US. The 10-year Treasury yield hit a new multi-year high of 2.697% this morning. But real rates remain deeply negative, with the y/y for the consumption deflator up 6.35% in February.
With real rates so negative, the labour market is likely to remain tight. This, in and of itself, need not indicate a fundamental shift the balance of power towards labour. Real average hourly earnings are falling year-on-year.
But that could change. Indeed, there is no doubt that the tight labour market is contributing to the higher inflation prints. If the job market was not so strong, the path for inflation back towards target would have been much more straightforward.
But the y/y for the Atlanta Fed wage tracker hit a new high of 6.0% in Q1. The current labour market conditions can be viewed as a continuation of the long economic cycle prior to the outbreak of the pandemic. The enormous US fiscal stimulus packages prevented a true shakeout in the labour market and strengthened worker bargaining power when the economy emerged from the recession.
The current labour disputes taking place are on a scale that remains historically small. But last Friday, Amazon workers in Staten Island voted to form a union. It marks the first US facility to unionise at Amazon. The vote is expected to kickstart a wave of unionisation efforts at Amazon facilities across the US.
It is telling that the formation of the ALU has emerged at the same time as a shift higher in the goods share of consumption, as well as the increased importance of transportation and warehousing as a sector. The prioritisation of securing resilient supply chains, and the promotion of a domestic manufacturing sector by the Biden administration, could put a further wind in the sails of the labour movement over the coming years. This ultimately raises the risks that long-term inflation will settle on a higher path.
