Wage Pressures and Covid Restrictions

A record number of firms increased wages at the start of the year as demand for workers continues to outpace supply and existing workers demand an increase in pay to offset the rise in inflation. According to a survey by the National Association for Business Economics, 70% of U.S. firms boosted wages in the first quarter. Additionally, the survey indicates the net share of those seeing increased materials costs rose to the highest level since the question was first asked in 1984. The report also indicated 45% of firms reported passing on?“some”?cost increases to consumers and about 71% anticipate they'll keep climbing.

With 11M job vacancies, businesses remain desperate for workers and as such are somewhat willing to increase compensation. That being said, according to Federal Reserve’s latest Beige Book, contacts?noted?"early signs that the strong pace of wage growth had begun to slow.”

In international news, rising coronavirus cases in China are promoting fears of a wider lockdown in Beijing, as the country maintains its zero-COVID policy. According to reports, officials locked down part of Beijing’s eastern district of Chaoyang, though supermarkets remain open. However, restrictions are set to ease after residents complete a testing regimen on April 27. The city reported 29 new Covid infections in the 24 hours through 4 p.m. local time, bringing the total caseload to 70 since Friday.

In response, the People’s Bank of China (PBOC) has taken numerous steps to amplify its easy money policy. The PBOC is encouraging banks, for example, to lend to businesses in Covid lockdown areas and has placed a moratorium on mortgage payments by homeowners in affected areas. Additionally, effective May 15, the PBOC reduced banks' forex reserve ratio requirements by 100bps to 8%.

Chinese equities are showing signs of weakness with the Shanghai Composite Index closing down 5.09% at 2,929.9.

Furthermore, fears of an increased negative impact from potentially additional and more widespread lockdowns in China has spread to commodities. Crude is down 4.6% at $97.38 a barrel as of 9:03 a.m. ET.?The Bloomberg commodity index is down 2.01% at 126.42 as of 9:07 a.m. ET.

Covid caseloads are also rising once again in the U.S., albeit modestly. According to the CDC, daily caseloads are up 51% from two weeks ago to 46,925. While still minimal relative to earlier spikes, the increase has prompted at least some cities including New York City and Portland to reverse course in a removal of safety protocols including a mask mandate on public transportation.

Also overseas, France's Emmanuel Macron defeated candidate Marine Le Pen in the second round of a runoff vote. According to reports, this is the first time the country has re-elected a president in two decades and the second time Macron has overcome Le Pen as a challenger to his post. Although, to be fair, this time the margin of victory was significantly reduced.?Official results showed Macron with 58.5% of the ballot compared to Le Pen with 41.5%. Five years ago, while the end result was the same, Macron took 66.1% of the votes and Le Pen took home 33.9%.

European equities are lower with the Euro Stoxx 50 down 1.34% at 3788.61 as of 9:10 a.m. ET.

This morning, the Chicago Fed National Activity fell from 0.54, revised up from 0.51, to a reading of 0.44 in March, in line with the expected decline to 0.45, according to?Bloomberg?and a three-month low. The Chicago Fed National Index draws on 85 economic indicators; a reading below zero indicates below-trend growth in the national economy and a sign of easing pressures on future inflation. In March, 59 of the 85 monthly individual indicators made positive contributions, while 26 made negative contributions.

Later this morning, the Dallas Fed Index is expected to decline from 8.7 to a reading of 5.0 in April.

Tomorrow, durable goods orders are expected to rise 1.0% in March following a 2.1% decline the month prior, and new home sales are expected to decline 0.9% in March from 772k to 765k.

Later this week, on Wednesday, pending home sales are expected to decline 1.0% in March following a 4.1% drop in February.

On Thursday, GDP is expected to rise 1.1% in the first quarter, down from the 6.9% rise in the fourth quarter, and the weakest pace of activity since Q2 2020. Also, initial jobless claims are expected to decline from 184k to 180k in the week ending April 23.

Finally on Friday, personal income is expected to rise 0.4% and personal spending is expected to increase 0.7% in March. Additionally, the PCE is expected to rise 0.9% in March and 6.7% over the past 12 months, and the core PCE is expected to increase 0.3% in March and 5.3% year-over-year.

-Lindsey Piegza, Ph.D., Chief Economist