Driving through the town of Fair Oaks in northern California the other day, two signs caught my eye. They were advertisements, not related to each other except in the sense that they could be viewed as warning signs for some rough economic times ahead. One sign a help wanted ad posted in the window of an In and Out Burger joint advertised jobs, with a starting wage of $16-18 dollars per hour. Keep in mind that the minimum federal wage is $7.25 cents. It hasn’t been raised in ten years, and you can make the argument that maybe it should.
In California, a company with more than 25 employees like In and Out , has to meet the minimum wage of $13 per hour.
But for a burger chain that offers its customers some of the lowest prices in the fast food sector, that fact that it’s willing to go $3-5 dollars more than the minimum, tells me two things. One, help—good, bad or indifferent is hard to come by and 2…it can’t sustain those high wages without raising prices. It also tells me that stimulus payments and pandemic related unemployment benefits are adequate enough to keep some people–perhaps the pool of lesser skilled or part time workers from looking for work. Banking $450 a week…$1800 a month for doing nothing, it’s hard to justify frying potatoes and flipping burgers for say even $15 bucks an hour, since most fast food jobs are part time, and probably won’t generate enough hours to meet what the federal and state government are paying workers for doing nothing but filling out a claim form from time to time.
Here’s what’s likely going to happen. Because they have to pay more for help, service industry companies like restaurants or department stores will have to raise prices, which depending on the business, could lose customers, or see a reduction in the number of times customers go out for a meal or buy a new blouse or a pair of jeans.
Once the wage war is set, you can raise it, but it’s rare that it’s lowered. So, what happens at year’s end, when the number of pandemics allowed jobless weeks to run out. Will the jobs still be available? Probably not.
The other warning sign was one of many advertising office spaces for lease. But one in particular caught my eye. One that offered office space at under $1.00 per square foot. That tells me landlords are becoming desperate. Empty offices or stores, primarily in strip malls become a magnet for squatters, graffiti, in some cases arson. They become an eyesore, a blight that knocks down the curb appeal or stores or other businesses that are trying to operate–and will lose customers if they feel the location is dicey or visually unappealing.
The pandemic, because of safety concerns created a climate where millions were told to work from home or opted to, and business owners in many cases, realized they could conduct business in the zoom economy without all those pesky costs like rent, office furniture, overhead and security. So, what becomes of the people who own zillions worth of Office Space?
Then there’s Joe Biden and/or the democrats who are probably telling him what to do. They didn’t learn much from how inflation cratered Gerald Ford’s presidency and brought down Jimmy Carter’s administration with ridiculous interest rates. 18 percent for a mortgage and 20 percent or more for a new car. And that was if you have good credit. Biden and company are throwing eye popping numbers of dollars in what they think is economic stimulus. The $2 trillion dollar CARES ACT, a near one trillion-dollar covid relief bill, a proposed $3 trillion dollars infrastructure overhaul that only calls for five percent in ACTUAL infrastructure improvements. This is money the U-S does not have. Its money being borrowed. Between that excessive borrowing and pent up demand for goods, prices are beginning to fly. You see it at the grocery store and the gas station. And even if you borrow at super low interest rates, you’ll see those costs soaring too, with the price of raw materials, everything from lumber and steel to paint rising. And enjoy those free shipping come ons…with gas and diesel already at 5 bucks or better a gallon…those increases will be passed along to us–either in direct increases in shipping or in the costs of goods…that are offered with free shipping.
Some of you may be saying come on Ed, if things were looking so bad, why would the financial markets be humming along almost daily new highs.
Simple…there’s nowhere else to put your money, with savings rates well under one percent.
Granted, interest rates are a major bargain but for how long? Even if they doubled in a year or two…to 5 or 6 percent—still historic bargains…but for a market of buyers who’ve never seen them that high—it could be enough sticker shock for buyers and sellers to start sitting on their hands…the home equity and refinance markets all but disappear–and here comes another housing bubble.
And then there’s the financial monkey wrench known as Crypto Currency. If enough investors buy in—and confidence in the dollar wanes world-wide….Where will we be?
Janet Yellin, Joe Biden and the rest of the people we voted for…or have to put up with because enough Americans voted for change–need to give it some serious thought. Or the economic up and downs of 2020…will make us feel nostalgic.