Tight U.S. and UK Job Markets put Upward Pressure on Wages and Prices

Snapshot

U.S Treasury Secretary Janet Yellen stated today that she expects a revival in U.S. labor force participation, although she was uncertain to what degree the current decline was transitory or permanent. Her comments were made at an event in Dublin, Ireland where she was attending the United Nations Climate Change Conference (COP26). 

UK Office for Budget Responsibility (OBR) member Charlie Bean also said in testimony today before the House of Commons Treasury Committee that the UK labor market was “alarmingly tight” and could put upward pressure on wages. 

Both of these officials’ comments were consistent with fresh news from McDonald’s Corp.’s regarding its wage and price increases, as well as higher than expected results from the ISM PMI for Manufacturing Prices. 

Column graph of the ISM PMI for Manufacturing Prices from April 2020 until November of 2021. The blue column shows the actual result, while the orange bar shows what was expected. 

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Detail

In her comments made during COP26, Treasury Secretary Yellen said that, “Although there's quite a bit of demand for workers now, many workers are remaining outside of the workforce in the U.S. It's a good question, is it transitory or is it permanent, I must say I'm uncertain”. She continued saying, “I do expect to see over time some revival of labor force participation but I think we don't have a perfect read at this point on exactly why it's diminished”.

Furthermore, OBR member Bean testified before the UK’s Treasury Committee that, “We need some of those workers on furlough to be looking for jobs to fill those vacancies,” Bean continued, saying that “If that doesn’t happen, the labor market is looking alarmingly tight might be overstating it a bit, but in a world where you haven’t got many workers looking for jobs and vacancies at a very high level, that is the sort of thing where the central bank starts thinking this is going to stoke wage pressures.” 

In related news that demonstrates growing price pressures due to labor shortages, McDonald’s Corp. MCD announced it would retain the 6% price increases it made earlier this year to compensate for higher supply and labor costs. So far, Mcdonald’s has increased wages for its workers by 10% this year. 

Furthermore, the Institute for Supply Management's Purchasing Manager's Index for Manufacturing Prices also notably bested expectations for the second month in a row, rising to 85.7 from 81.2 versus the 82.5 expected. This number is an inflation gauge widely considered to be a leading indicator of consumer prices. As the graph above shows, manufacturing prices seem to be rising again after a previous correction lower that bottomed with September's release of data for August.