Second Inflationary Wave Could Emerge From Wages
2023.09.20 03:37
While the UAW strike continues and the debate on how much it matters in the scheme of things rages on, other wage trends are emerging.
Amazon (NASDAQ:) today announced it will hire about 250,000 logistics personnel for the holiday season at a wage of $20.50 per hour.
The Amazon chart shows a retracement to the July 6-month calendar range high and the 50-DMA.
However, there is a bearish divergence on our Real Motion (momentum) indicator.
This could mean the price is vulnerable to breaking under the key support levels of 135.30.
It could also mean that if prices improve from here, momentum might improve.
Nonetheless, this remains to be seen after today’s announcement that could hit the bottom line for Amazon, especially if the holiday season is not all that.
After 40 years of wages not keeping up with inflation or the cost of living, we started thinking:
Is the next wave of hyperinflation emerging from wages and not necessarily just from high food and energy prices?
To explain:
Scenario 1:
- More and more workers demand higher pay, and companies are forced to comply. These companies must reduce their production, thereby tightening supply.
- Demand remains robust with the added wages and stronger labor market; hence the cost of goods goes up.
Scenario 2:
- Wages softened, as seen in the chart, since March 2023, and inflation has not come down much more (in fact, it is rising). Workers do not get a higher income. Workers begin to leave their jobs or quietly quit.
- Companies must reduce their production, thereby tightening supply. Demand continues to outstrip supply (although not as much as in scenario 1) with the lack of wage growth; hence the cost of goods goes up anyhow due to social unrest.
- Social unrest tends to create hoarding.
This is a theory, of course. This theory, though, is based on the trend that started in the summer and is continuing into the fall-demand for higher pay.
ETF Summary
- (SPY) 440 support 458 resistance
- Russell 2000 (IWM) 185 pivotal 180 support
- Dow (DIA) 347 pivotal 340 support
- Nasdaq (QQQ) 363 support and over 375 looks better
- Regional banks (KRE) 44 pivotal 42 support
- Semiconductors (SMH) 150 pivotal 145 support
- Transportation (IYT) Needs to get back over 247 with 235 support
- Biotechnology (IBB) Compression between 124-130
- Retail (XRT) Weak especially if this breaks down under 57, the 80-month moving average.
