After my term serving on the Community Advisory Council to the Federal Reserve, I became much more intrigued with economics and policy. On the CAC we were asked questions on lending, housing, homelessness, labor and more by the Governors. I often wondered why financial policy makers cared about these issues.
Understanding the economics of inflation is even more confusing. The Federal Reserve sets interest rates to cool a heated economy taking into consideration a plethora of factors. This inflation cycle is tough to manage particularly due to the shortage in labor force. Construction has been proactive in trying to increase workforce numbers over the past 10 years, recognizing how baby boomer retirements would affect construction. We were making headway and in 2019, I was reporting the increase in apprentice numbers to the Governors. And then COVID hit.
I have been in multiple meetings and discussions regarding the mysterious loss of employees. Where did they all go? Recent analysis shows that nearly 3.5 million people are missing from the labor force. Fed Chair Powell recently noted that roughly 2 million of those have simply retired since 2020. It was thought that this was temporary, but folks have changed their lifestyle and will not be returning specifically adults 65 and older who accelerated their retirements.
Chair Powell noted that “Despite very high wages and an incredibly tight labor market we don’t see participation moving up, which is contrary to what we thought.” Currently there are 1.7 job openings for every jobless person in America leading employers to raise wages at the fastest pace in decades. With pay increasing aggressively, Fed officials worry that they will struggle to bring inflation fully under control. Wages, though not normally a major driver of inflation, could keep it high. Businesses facing heftier labor bills will pass those costs along to their customers in the form of higher prices. Balancing this labor market will require raising interest rates even more to slow spending thus reducing workforce needs.
In this blog I just wanted to note a bit about the cause and effect of what economically is happening. I hear so many people complaining about it but not really focusing on the why. Understanding the details can help shape conversations during moments of frustration I encourage you to do a deeper dive by visiting the Federal Reserve website if you are interested. Additionally, you can check out the Federal Reserve Bank in Minneapolis to focus more on our region, sign up for newsletters, and review the results from the surveys I forward to you all regarding construction and manufacturing.