Do you happen to know a young graduate looking for work in the American Midwest or Northeast? Are they feeling uncertain about their job direction or career path?
Maybe they should work at Taco Bell.
That sounds like the lead-in to a joke, but isn’t, because this Jan. 9 headline from Bloomberg is real:
“You Can Now Make $100,000 Working at Taco Bell.”
The $100K is no joke either. Yum! Brands, the corporate parent of Taco Bell, is having trouble finding people to manage its company-owned stores, particularly in the Midwest and Northeast. So, they are bumping general manager starting salaries to six figures.
“Amid an increasingly tough U.S. labor market,” Bloomberg reports, “the company is betting a higher salary will help it attract workers and keep them on the team.”
The U.S. unemployment rate dropped to 3.5% in November 2019. That is the lowest unemployment in 50 years (since 1969). Average hourly earnings are also climbing.
America’s economic landscape continues to change rapidly. In the old days, fast food jobs were dismissed as “McJobs,” suggesting they were low-wage and low-quality. Now, it’s possible to make a decent living in fast food — and the skill requirements are rising.
As technology improves the speed, efficiency, sophistication of fast-food chains, the work tasks are becoming more sophisticated, too. Fast food workers today have to be at least passingly comfortable with software. Store managers are getting immersed in it.
What’s interesting here is the impact of technology on wage prospects. For a long time, the consensus was that robots would take human workers’ jobs, leading to a glut of unemployed human workers and a falling wage environment.
That isn’t the result though — or at least not in the fast food industry in competitive regions of the country. Instead, paychecks are growing with talent in short supply.
For investors, the intriguing question is how inflation can stay low. (Spoiler alert: Maybe it can’t.)
Treasury bonds, corporate debt, and high-yield “junk bonds” are all currently priced as if interest rates, and thus inflation, will stay at rock bottom levels forever. The market acts like inflation can’t come back.
But “never” is an exceptionally long time — and now there are $100K jobs at Taco Bell.
The prior salary range for Taco Bell general managers, by the way, was reportedly $50K to $80K. So the $100K baseline provided by Yum! Brands is a bump of 25% to 100%. That is not small beer.
A key point here: Wage inflation is the main driver for the price of inflation. To see inflation rise persistently over time, barring a full-blown debt crisis or a war, you really need wages to be rising.
Asset prices alone won’t trigger general price inflation, because not enough Americans own real estate or stock portfolios. Commodity prices alone won’t do it either, because higher commodity costs act like a tax on spending power. (If the cost of gasoline doubles, that hits consumers in the wallet, and so on.)
When wages are going up, though, consumers have more money to spend — and a greater willingness to spend it if other prices are going up, too. The 1970s were highly inflationary in part because, in addition to an oil-price shock, wages were rising in lockstep with union demands (and a baked-in psychology of expected price hikes).
Given current wage trends — not to mention the lowest unemployment in 50 years — investors are asleep regrading inflation risks. Maybe the rising cost of tacos will wake them up.
TradeSmith Research Team