Jobs report and wage pressure complicate inflation picture, UNC economist says
The job market is good, but there is a dark cloud of inflation, according to a UNC professor.
A University of North Carolina economist believes that Friday's report on national employment shows inflation is still raging and wage demands are likely to continue complicating the economy.
The U.S. Labor Department announced Friday that the economy created more than expected 253,000 new jobs in April, and that the unemployment rate dropped incrementally to 3,4%.
Christian Lundblad, UNC-Chapel Hill Kenan Flagler Business School Finance professor, told a press briefing shortly after the release of the report that the Federal Reserve Board faces difficult choices.
Lundblad concluded that 'the inflation problem hasn't disappeared'.
Lundblad stated that job growth is good news both for the workers and the economy. The number of job openings has decreased slightly, which indicates a softening in the demand for workers.
A second X-factor in the banking system is that some regional banks with significant deposits have reported notable losses. Further failures may lead to tightening credit which could slow growth and inflation.
Lundblad said that after inflation is adjusted, real wage growth remains flat. However, as an economic indicator, hourly earnings averages were higher than expected and outperformed expectations. The Employment Cost Index has moderated but still runs at 5% per year.
When firms struggle with their labor budgets, they pass on some of those costs to their customers as much as they can. This is what leads to widespread inflationary pressures.
Lundblad expects the Fed to maintain its current interest rate at its next meeting, unless it receives an unexpectedly high inflation report. Lundblad says the question for the Fed's next meeting will be how long they stick with flat rates in light of wage pressure.
Lundblad stated that the manufacturing sector was not a significant part of the Triad economy. The wage inflation is more evident in the services sector. While the details may vary by region, the acute labor issues are mostly outside the manufacturing sector, Lundblad said.
The report on Friday follows Thursday's North Carolina release of job data for March, which showed a marginal decline of about 1,000 jobs in Greensboro/High Point, a decline of just three-tenths percent. The largest declines were in the hospitality, professional, and business services. Winston-Salem's metro area did not see any net changes. Burlington-Alamance County added a few hundred jobs. On a seasonally-adjusted basis, the number of jobs in the state grew by 2.8%.