Inflation and Unemployment Rise

According to a U.S. Labor Department report today, U.S. inflation soared to a 17 year high annual rate in July, up 5.6% from a year earlier, led by gains in food, energy, travel costs and other items. On the positive side though, with energy and commodity prices recently on the retreat and the U.S. dollar strengthening, the report is unlikely to move the Federal Reserve into raising rates anytime soon.

Also this week, the WA State Department of Employment Security reported that the state unemployment rate rose to 5.7% in July (up from 5.5% in June), equaling the overall U.S. rate. Most of the increase is attributable to weakness outside of the Puget Sound region, and to an increase in the number of persons seeking employment. Relative strong spots remain in technology, healthcare, education and aerospace.

This stagflationary mix of rising unemployment, a strained economy and rising inflation, creates a dilemma for employers. Generally speaking, higher inflation tends to lead to rising merit increase budgets, but with the economy at it weakest in years, and business conditions continuing to worsen, it seems unlikely that employers will be more likely to open their wallets further anytime soon.

Stay tuned...