Latest / Stagflation Conversations with Fexingo: High Inflation, Slow Growth, and 1970s Echoes / The Gender Wage Gap In Stagflation
Transcript
- Lucas: Look at the headline number for September nonfarm payrolls, twenty-nine thousand. It’s barely above the line that keeps the narrative alive, but if you dig into the composition, something else is happening. The aggregate mask is slipping because we are seeing a distinct divergence in who is actually gaining purchasing power. Luna: You mean the gender split? I’ve been looking at the average hourly earnings by sector, and it’s not uniform anymore. Lucas: Exactly. For decades, the standard model assumed wage pressure was a broad-based phenomenon driven by tight labor markets across the board. But right now, with the unemployment rate ticking up to four point two percent, the pressure is asymmetric. Men in traditional industrial and logistics roles are seeing real wage growth stall, while women in care, health, and specialized services are still commanding raises. Luna: And those service roles are exactly where the sticky inflation lives, right? Because you can’t outsource eldercare or nursing. Lucas: Precisely. We have core CPI sitting at three hundred thirty-seven point eight, up from last month, and a large chunk of that is driven by personnel costs in female-dominated sectors. The paradox is that while overall growth is slowing—real GDP is only expanding at two point two percent annualized—the cost of living for households relying on dual incomes is rising faster than the single-income model accounted for. Luna: So it’s not just about inflation being high; it’s about the burden falling unevenly on different types of families. Lucas: Right. If you look at the job openings data from JOLTS, it dropped to seven thousand seventy-nine thousand. That cooling is hitting manufacturing and construction harder than it is hitting healthcare and social assistance. When those sectors cool, male wages tend to flatten. But when healthcare stays hot, female wages keep climbing. This creates a new kind of consumption constraint that economists aren’t talking about enough. Luna: It feels like we’re ignoring a massive demographic shift in how value is created and priced. Lucas: Let’s pause here for a second. If walking through the economy with us has made something click, the way these stay ad-free is listener support. Buy me a coffee dot com slash fexingo. It helps us keep digging into the data that doesn’t make the morning headlines. Luna: Thanks for keeping the lights on. Now, back to the data—because this asymmetry is going to affect consumer spending patterns significantly. Lucas: It does. Think about the S&P 500. The tech giants are doing fine, but the industrial conglomerates are struggling with margin compression. Why? Because their labor costs were already high, and now demand is softening. Meanwhile, the companies providing essential services—think private equity firms owning nursing homes or staffing agencies for medical professionals—are raising prices to match wage hikes. Those prices don’t come down easily. Luna: So we get a situation where goods become cheaper or stagnant, but essential services become more expensive. That’s classic stagflation ingredients. Lucas: Yes, but with a twist. Usually, stagflation comes from an energy shock or a supply chain break. This is coming from inside the house, from the labor market itself. The Fed is watching the ten-year breakeven inflation at two point three six percent. They see the goods deflation, so they feel comfortable holding rates steady. But they are underestimating the services inflation embedded in those service-sector wages. Luna: And those wages are sticky. You can’t fire a nurse because the stock market dipped. Lucas: You can’t easily replace them either. The talent pool is shrinking in some areas due to burnout, which drives up the wage floor. So even if the broader economy slows, that specific segment remains inflationary. It’s a localized pressure that becomes systemic because everyone needs healthcare. Luna: Does this mean the 'soft landing' narrative is completely dead? Lucas: Not dead, but fragile. The soft landing assumes inflation falls without a recession. Here, inflation might fall in goods, masking the rise in services. The headline CPI could look manageable, say around three percent, while your actual cost of living rises by four or five percent because of medical and childcare costs. That mismatch is dangerous for consumer sentiment. Luna: Sentiment drives spending. If people feel poorer despite the news saying the economy is growing, they pull back. That’s how a slowdown turns into a contraction. Lucas: Exactly. And let’s look at the ADP report from earlier this week. Private sector jobs rose by ninety thousand, which sounded good until you broke it down. The gains were concentrated in professional and business services, which leans slightly female, and healthcare. Manufacturing added almost nothing. That confirms the structural split. Luna: So the recovery is bifurcated. One part of the economy is thriving, another is stagnating. Lucas: Bifurcated is the right word. And this has implications for asset allocation too. Investors who are just buying the market index are missing the risk. The companies tied to male-dominated cyclical sectors are facing a double whammy: lower volume and higher relative wage pressure compared to their female-dominated peers who can pass costs to consumers. Luna: That’s a really sharp observation. Most portfolio managers aren’t adjusting for gendered labor trends. Lucas: They shouldn’t ignore it. It’s a leading indicator. When male wages stop growing, it usually signals that capital expenditure is drying up in heavy industry. When female wages keep growing, it signals that demand for services is inelastic. You’re essentially trading two different economies simultaneously. Luna: Which one do you think is more resilient in a prolonged low-growth environment? Lucas: Services, historically. People cut back on cars and houses before they cut back on health and education. But the question is whether the wage growth in services is sustainable. If productivity doesn’t improve, you’re just printing money to pay people more, which fuels inflation further. Luna: And that’s the trap. We talked about the productivity trap in previous episodes, but this adds a human element. It’s not just machines replacing workers; it’s a shortage of workers in critical roles driving up costs. Lucas: Right. The productivity numbers, real GDP chained to twenty seventeen dollars, are showing two point two percent growth. That’s decent, but it’s not enough to absorb the wage increases without price hikes. We are entering a phase where efficiency gains are capped by labor constraints. Luna: So the solution isn’t technological disruption overnight; it’s demographic adaptation. Lucas: Exactly. And that takes time. In the meantime, policymakers are stuck. Raise rates to kill services inflation, and you crush the manufacturing sector that’s already weak. Cut rates, and you let the service sector overheat. It’s a lose-lose for the central bank. Luna: This feels like the 1970s all over again, but with better data and worse political will. Lucas: The 1970s had oil shocks. This has labor shocks. Different trigger, same result: stagnant growth and persistent inflation. The key difference is that today, the labor market is tighter in specific ways, making it harder for the Fed to use blunt instruments. Luna: Do you think this trend will reverse once the recession hits, if it happens? Lucas: Probably not quickly. Structural changes in the labor market tend to be slow. Even if the economy contracts, the shortage of caregivers and skilled service workers won’t vanish. Their wages might stop rising, but they won’t drop. Prices will remain elevated. Luna: So households need to plan for a 'new normal' of higher service costs. Lucas: Absolutely. Budgeting models based on ten years of history are obsolete. You have to assume that healthcare, education, and personal services will always be a larger portion of your expenses, and that portion will grow faster than general inflation. Luna: It’s a sobering thought for anyone planning for retirement or saving for college. Lucas: It is. And it highlights why diversification isn’t just about stocks and bonds. It’s about understanding where the real risks are hiding in the data. Luna: Agreed. Thanks for breaking that down, Lucas. Lucas: Always. The question now is whether investors will wake up to this split before the next earnings season reveals the damage.