The US jobs market is already generating inflation
US business leaders are complaining about a tight job market, which is feeding through into higher wages.

Global stockmarkets fell sharply early this week, with concern over US inflation. Technology shares were hit particularly hard: the tech-heavy Nasdaq 100 index has fallen by 5% since 1 May.
Investors’ US inflation expectations are at a 15-year high, says Naomi Rovnick in the Financial Times. The five-year break-even rate (the difference between the yield on inflation-linked five-year Treasuries and nominal five-year bonds) shows that investors expect average inflation of 2.73% over the next five years, the highest this figure has been since 2006. Spiking inflation could force the US Federal Reserve to tighten monetary policy sooner than expected. That would mean less liquidity sloshing around the market, which is negative for stock prices.
Markets were already struggling to digest some puzzling US jobs numbers, says Neil Irwin in The New York Times. Last week we learnt that the US added only 266,000 jobs in April, less than one-third of the amount predicted. With the unemployment rate still elevated at 6.1%, does this mean that the promised boom has gone missing? A more likely explanation is that generous federal unemployment support, which has been extended until September, is discouraging people from seeking work, says Noah Williams for National Review Capital Matters. “Incentives still matter… make unemployment more attractive, and, all else equal, more people will remain unemployed.”
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Business leaders are certainly complaining about a tight job market, adds Irwin. That is feeding through into higher wages. Average hourly earnings rose 0.7% last month; in leisure and hospitality, which is reporting some of the worst labour shortages, hourly wages surged by 4.8%. That should eventually feed through into higher inflation.
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Alex is an investment writer who has been contributing to MoneyWeek since 2015. He has been the magazine’s markets editor since 2019.
Alex has a passion for demystifying the often arcane world of finance for a general readership. While financial media tends to focus compulsively on the latest trend, the best opportunities can lie forgotten elsewhere.
He is especially interested in European equities – where his fluent French helps him to cover the continent’s largest bourse – and emerging markets, where his experience living in Beijing, and conversational Chinese, prove useful.
Hailing from Leeds, he studied Philosophy, Politics and Economics at the University of Oxford. He also holds a Master of Public Health from the University of Manchester.
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