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Richard Scrope
Fund Manager
In the United States, the problem of the missing workforce has been one of the notable paradoxes during the economic recovery seen thus far. The labour shortage has been widespread, with companies such as McDonalds offering $50 for just turning up for an interview, Amazon offering a $1,000 signing on bonus, and Chipotle offering free college tuition for employees who work 15 hours a week. Many others such as Walmart and Costco have been raising wages to well above the minimum wage.
The chart above shows that it is not only the consumer staples and discretionary sectors that are facing a missing workforce; industrial companies are also reporting the same problem. The chart below depicts the availability of drivers in the truck market, which has led to freight rates reaching all-time highs.
The recent reopening of the UK economy has widely been seen as a long-awaited lifeline for much of the hospitality sector, and that pent-up demand may result in excess profits as customers opt for staycations or just the thrill of eating and drinking outside their homes. However, it has become apparent that the labour shortage is not only a US phenomenon, as many restaurants are operating at reduced capacity due to the lack of staff. This is not only the experience of this fund manager whilst visiting the North East of England last week, but even avid proponents of Brexit, such as Tim Martin, the CEO of JD Wetherspoon has been vocal in asking the government to let in more EU migrant workers owing to the difficulty in recruiting UK workers to staff his pubs.
How much of this shortage in the workforce is a biproduct of the furlough scheme being extended to 18 months, since its inception in March 2020, will become evident by the end of September as the official unemployment rate is currently at 4.9%, which is significantly above the 3.8% recorded before the pandemic hit.
In the US new unemployment claims are falling, but still well above pre-pandemic levels, and the number of people receiving benefits are still seven times higher than at the end of 2019, suggesting that millions of workers are still sitting on the side-lines and collecting the additional $300-a-week of supplementary pandemic related benefits; half of the US states are now planning to end this program before it expires in September to try and address the job openings/unemployment mismatch and negate the problem of people being better off sitting at home and collecting benefit than entering the workplace.
Although there are a few signs the demand for labour may be having an inflationary effect on wages, it is yet to show in official numbers. However, further pressure on company margins which are already having to combat rising raw material costs is a concern.
As we have highlighted in previous weeks, those companies with pricing power or produce essential goods in oligopolistic markets should be able to pass through costs to the consumer, and thus offset these headwinds, so attention to Porter’s 5 forces is an important part of the stock selection process in the VT Tyndall Global Select Fund.
WARNING: All information about the VT Tyndall Global Select Fund(‘The Fund’) is available in The Fund’s prospectus and Key Investor Information Document which are available free of charge (in English) from Valu-Trac Investment Management Limited (www.valu-trac.com). Any investment in the fund should be made on the basis of the terms governing the fund and not