It’s summer of 2022 and there’s a lot of financial news of companies reporting labor shortages to meet demand. There’s evidently not enough people to fill all the positions available. Firms such as FedEx to Domino’s are reporting how it’s impacting their ability to keep up with the demand. The key word here is demand, generational demand.
The issue is the demand being created by the larger younger generations. There are more people from the age of single digits to the age of the early forties than there are from the age of mid forties up in the US. The amount of the younger population is close to thirty five million greater than the population from mid forties and above according to google. California has a population greater than thirty five million as a comparison.
The demand of the younger generations is creating demand pressure. A lot of it. They’re used to technology, and they are using it to order faster. More demand with supply trying to catch up. Labor and materials supply.
Historical Demand of the 70’s-80’s
The current inflationary scenario is often being referred to as similar to the late 1970-1980’s. During this time period the baby boomers were coming into their mid thirties and consumption demand was increasing. The oil embargo occurred in the early 70’s which put upward pressure on fuel prices similar to today.
The federal reserve battled these inflationary times of the 70-80’s for almost a decade. Historically, inflation hasn’t been managed until the fed tightening exceeds the inflation rate. If this still holds true today that means we would need to see a fed rate above 8-9%.
Many concepts of today and the 70-80’s are similar with the exception of one. Today, we have an economy that is much more technology driven unlike the 1970’s. The prevalence of software, 3D printing, robots, electric vehicles, and solar weren’t factors back in the 70’s as they are today. Technology is deflationary, so the question is how much effect it may have on the inflation rate going forward.
It is possible that technology could be the cause of the increased demand and at the same time create a deflationary effect to offset it. This would mean it cancels itself out and becomes irrelevant. I suspect this is unlikely, yet possible.
The Fed is using rate increases and treasuries to fight their battle. Combined these tools could be effective. Mortgage rates have already doubled which combats inflation as well.
The end result is we can guess and speculate, but ultimately randomness guides the next of events. Irrespective of what happens we have the tools to invest. The best part is that it is temporary and randomness will keep forging its path.