The Truth About Wage Inflation (Good News & Bad News)

SPEAKER_1 (0:01)

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Michael Zuber (0:28)

Great news. We are about to see potentially years of wage inflation. What am I talking about, folks? Well, we are already starting to see significant pressure in certain parts of the economy, given the immigration trend over the last year or so. What am I talking about? Well, specifically, the Wall Street Journal has highlighted some conversation with national homebuilders. Here we go. Two-thirds, two-thirds of builders said, immigration enforcement is affecting labor force. Now, 66%, which is two-thirds, is significant. But you should always ask yourself, compared to what? In this example, just a few months ago, in March, it was less than 25% coming in at 23%.

So, in a short six-month period, the labor impact from immigration enforcement has jumped from 23% to 66%.

Specifically, Tidewater Homes president said the following in that Wall Street Journal article. We are almost dead in the water because our workforce is gone.

So, what does this mean, and why will this lead to wage inflation? Well, if you just want to step back and look at and peel back the onion, the builder industry obviously, in this example, relied on illegal citizens or whatever that's called. And now that the immigration policy has ramped up, now that both self-depart, self-

what is that called? Well, I guess you're deporting yourself, going back to your home country, or ISIS doing their thing. Now, they can't find labor. So, why does that lead to wage inflation? Well, it's really simple. These builders can either pay more or not build.

And that is where we are at in this cycle. So, we could significantly see wages go up. But let's not forget, wage inflation is sticky. Wage inflation will ripple through the entire economy. Wage inflation will send CPI, PCE, PPI higher. In fact, it already is. The last time we looked at services inflation, which obviously is very labor intensive, services inflation was up five percent, five percent. So again, it's simply supply and demand. If you remove the supply of labor, you have to pay more for the existing pool of labor. So again, Wall Street Journal did an excellent article, really talking about builders. But for me, it was just a highlight that wage inflation will be coming to certain segments of the economy. Again, will it be AI and this, that, and the other? It doesn't matter, right? AI is not building homes today. AI is not working in the fields. AI is not doing lots of things. So at least in the short term, call it the next 24 to 36 months, I think we are going to see some significant wage inflation. And I'm not sure the Fed is ready for what happens next. Because again, as an economy, we are 60-plus percent services. And if wage inflation goes up significantly, that will make higher for longer, higher for longer. Other things of note for the daily financial news, we got some banks reporting on Friday that we didn't talk about. We got Regions banks. Deposits actually fell 1.2 percent. That's not good.

MT Bank. Loan book grew 2.6 billion. However, charge-offs also grew, went up about 50 percent from 80 million to 127 And then JB Hunt, this is a trucking company. JB Hunt revenue up 20 percent.

Unfortunately, operating margin up 2 Why? Fuel, labor, insurance, all inflationary. Again, we are starting to see inflation in different parts of the economy. If the trucking companies are seeing inflation, diesel, insurance, labor, all of that will ripple through the products that they deliver. Congratulate a couple of people for joining school. Noel and Renee, thank you for joining. Don't forget, it is Sunday. So in about 25 minutes, I will go live inside school for an hour of Q&A. If you ever wanted to ask me a question, that is the place to do it. I read an interesting article on Die With Zero, Bill Perkins' book, and I jotted down eight rules from the article I read. Again, if you haven't read Die With Zero, it really is kind of that it changes your opinion, perhaps, on accumulation of wealth and things of that nature. Number one, focus on maximizing your positive life experiences. Again, think about your experiences in your 20s and 30s. These really are like dividends. They are memories that you can recall. Instead of working forever, sunrise to sunset, you have some dividends that you can cash in. Start investing in experiences early. This is the biggest mistake I see when Olivia and I do our very nice travel as we see lots of 70, 80, and sometimes 90-year-olds who can afford it, but their bodies can't take it. And it is really sad to see.