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Workers mount solar panel modules during construction of a Silicon Ranch Corp. solar generating facility in Milligan, Tennessee.
“Pressure is building for employers, and both hard data and anecdotal reports indicate that wage pressures are building,” Jim Baird, chief investment officer at Plante Moran Financial Advisors, said in a note. “With the economy still humming, employers are able to justify stronger wage increases to retain or attract talent, but it’s becoming a more challenging proposition.”
As employers face the pressure, the costs likely will end up getting passed on.
Most inflation measures are at 2 percent or more now, and are likely to continue rising. Companies are reporting record profits, but could find themselves constrained by a double-short of inflation, both from wages and rising costs due to escalating trade tensions and tariffs between the U.S. and its trading partners.
“How much might rising labor costs chew into corporate profits? How much will be passed through to customers in the form of higher prices? That remains to be seen,” Baird said. “Rising labor costs will boost take home pay, but we’re also all likely to see the effect in rising prices for goods and services.”
Those are all issues the Federal Reserve will have to weigh as well.
The U.S. central bank has been raising interest rates as it sees the economy growing and inflation meeting the Fed’s 2 percent target. Fed officials have indicated they will be raising rates two more times in 2018, but the market has been skeptical, with traders assigning just a 51 percent chance of that happening.
The economy has “bumped against the proverbial labor wall,” David Rosenberg, chief economist and strategist at Gluskin Sheff, said in his morning note Thursday. “Inflation pressures will intensify and the Fed will be forced to act more aggressively, just as has been the case in the past. There is no Presidential Tweet that will stop Mother Nature from taking its course.”
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