Gordon Reid's Top Picks: October 19, 2021
BNN Bloomberg
Top picks for Gordon Reid, president and CEO, Goodreid Investment Counsel
MARKET OUTLOOK:
Many issues, including monetary and fiscal policies, corporate earnings growth prospects, and COVID-related economic dislocations are clouding the equity market outlook. One issue that strikes us as worthwhile taking seriously is inflation.
In the United States, inflation is at an uncomfortable thirteen-year high of 5.3 per cent. We think the base effects of “cost-push” inflation factors will subside over the next 12 months, whereas “demand-pull” inflation in our assessment is likely to be more lasting.
“Demand-pull” inflation is typically described as too much money chasing too few goods and services, which seems like an apropos description of the current environment. Household balance sheets and household wealth are remarkably strong for an economic recovery in such nascent stage, courtesy largely of government relief payments to individuals.
At the same time, spending patterns shifted sharply towards goods last year as high touch/congregate setting services were under strict lockdown, and so demand for and prices of “things” skyrocketed. Now, with the economy reopening more broadly, demand for services is coming back online, but whereas last year there were shortages of finished durable goods, this year, there are shortages of labour - particularly unskilled labour in service industries where labour accounts for a significant portion of total operating costs.
With massive government income support programs very slow to wind down, low wage labourers, particularly those with young children or those with compromised health are very reticent to rejoin the workforce at the pre-pandemic prevailing wage. As a result, countries are experiencing acute wage inflation in these segments of the workforce as employers scramble to outbid one another for the marginal worker.
