If It Weren’t For The Labor Shortage, Store Prices Would Go Higher Even Faster


Shoppers may be facing galloping inflation, but if it weren't for the nationwide labor shortage making it difficult for stores to find workers to mark prices higher, it might be even worse.

“On the web, you can change prices all day long. The challenge for stores is labor,” said Prashant Agrawal, CEO of Impact Analytics, which uses artificial intelligence to help retailers optimize prices and promotions. “If it’s a challenge just to get cashiers and keep the registers open, doing this other stuff is tough.”

Brick-and-mortar stores have a long way to go until they’re changing prices with the ease of Amazon and many other online sites, where prices are often toggled up or down automatically throughout the day in response to competitors and real-time supply and demand.

That’s largely because it’s still a manual process in stores, especially for chains that have thousands of products across thousands of stores. Retailers, restaurants, and other companies are still trying to hire 11.4 million people, even with 6 million unemployed workers, according to the latest government data.

Workers have also become more expensive, with industry leaders like Target, Walmart, and Amazon raising hourly wages to compete for workers. That makes their time more valuable and could cost stores more than they can make up for higher prices.

One pricing-software company, Revionics, said it’s helping retailers facing a labor shortage prioritize which price changes are most important. For instance, if a retailer only has enough staff to change 150 prices in its stores every week, rather than 200, it will rank them in order of importance. At the bottom of the list might be promotions that aren’t doing a lot to boost sales or profits.

“We can help retailers understand where they’re wasting effort,” said Matthew Pavich, Revionics’ senior director of retail innovation.

Retailers also face other constraints keeping them from raising prices faster or more frequently. For instance, Lands’ End publishes a print catalog with prices. Even when it begins costing more to make a down parka or a pair of rubber boots, the company will wait until at least the next season to raise prices. “We never change prices mid-season,” said Sarah Rasmusen, chief customer officer at Lands’ End.

Changing prices too frequently can also be confusing to customers. While it’s considered normal for airline tickets or gasoline prices to change day by day, customers still expect prices on groceries and other items to be more stable.

When Walmart institutes a rollback on an item, it typically likes to hold that price for 90 days as part of its promise to offer “everyday low prices.” “You want to maintain some consistency,” said Chad Yoes, former VP of pricing for Walmart US.

Northern Tool & Equipment has been changing prices twice as often as it used to because of aggressive cost increases from its suppliers. That also happens to be twice as often as it would like, said Jeff Land, vice president of merchandising for the home improvement retailer. It takes about three to five days for price changes to be implemented across its 125 stores. “It’s still a very manual thing,” Land said.

More retailers are starting to test electronic shelf labels, which are already common in Europe, and make it possible to update prices in seconds. Pittsburgh-based grocery chain Giant Eagle has three pilots underway for electronic price tags.

While the upfront cost for those electronic tags hasn’t made sense for many retailers in the past since they weren’t changing prices nearly as often, the calculus has changed. “I think you see it now becoming a little bit more mainstream,” said Ed Johnson, consulting lead for customer strategy in retail and consumer products at Deloitte.

Inflation is at a 40-year high. Stock prices are sinking. The Federal Reserve has just made borrowing even costlier. And the economy actually shrank in the first three months of this year.

Is the United States at risk of enduring another recession, just two years after emerging from the last one?

On Wednesday, the Fed stepped up its drive to tame inflation by raising its key interest rate by three-quarters of a point — its largest hike in nearly three decades — and signaled more large rate increases to come.

For now, most economists don’t foresee a downturn in the near future. Despite the inflation squeeze, consumers — the primary driver of the economy — are still spending at a healthy pace. Businesses are investing in equipment and software, reflecting a positive outlook. And the job market is still booming, with hiring strong, layoffs low and many employers eager for more workers.

“Nothing in the U.S. data is currently suggesting a recession is imminent,” Rubeela Farooqi, chief U.S. economist at High-Frequency Economics, wrote this week. “Job growth remains strong, and households are still spending.

That said, Farooqi cautioned, “the economy faces headwinds.”

Among the signs that recession risks are rising: High inflation has proved far more entrenched and persistent than many economists — and the Fed — had expected: Consumer prices rose 8.6% last month from a year earlier, the biggest annual 12-month jump since 1981. Russia’s invasion of Ukraine has exacerbated global food and energy prices. Extreme lockdowns in China over COVID-19 worsened supply shortages.

Fed Chair Jerome Powell has vowed to do whatever it might take to curb inflation, including rising interest rates so high as to weaken the economy. If that happens, the Fed could potentially trigger a recession, perhaps in the second half of next year, economists say.

Analysts say the U.S. economy, which has thrived for years on the fuel of ultra-low borrowing costs, might not be able to withstand the impact of much higher rates.

The nation’s unemployment rate is at a near-half-century low of 3.6%, and employers are posting a near-record number of open jobs. Yet even an economy with a healthy labor market can eventually suffer a recession if borrowing becomes costlier and consumers and businesses put a brake on spending.



Higher loan rates are sure to slow spending in areas that require consumers to borrow, with housing the most visible example. The average rate on 30-year fixed mortgages topped 5% in April for the first time in a decade and has stayed there since. A year ago, the average was below 3%.

Home sales have fallen in response. And so have mortgage applications, a sign that sales will keep slowing. A similar trend could occur in other markets, for cars, appliances, and furniture, for example.



Borrowing costs for businesses are rising, as reflected in increased yields on corporate bonds. At some point, those higher rates could weaken business investment. If companies pull back on buying new equipment or expanding capacity, they will also start to slow hiring. Rising caution among companies and consumers about spending freely could further slow hiring or even lead to layoffs. If the economy were to lose jobs and the public were to grow more fearful, consumers would pull back further on spending.



Falling stock prices may discourage affluent households, who collectively hold the bulk of America’s stock wealth, from spending as much on vacation travel, home renovations, or new appliances. Broad stock indexes have tumbled for weeks. Falling share prices also tend to diminish the ability of corporations to expand. Wage growth, adjusted for inflation, would slow and leave Americans with even less purchasing power. Though a weaker economy would eventually reduce inflation, until then high prices could hinder consumer spending. Eventually, the slowdown would feed on itself, with layoffs mounting as economic growth slowed, leading consumers to increasingly cut back out of concern that they, too, might lose their jobs.



The clearest signal that a recession might be nearing, economists say, would be a steady rise in job losses and a surge in unemployment. As a rule of thumb, an increase in the unemployment rate of three-tenths of a percentage point, on average over the previous three months, has meant that a recession will eventually follow.



Many economists also monitor changes in the interest payments, or yields, on different bonds for a recession signal known as an “inverted yield curve.” This occurs when the yield on the 10-year Treasury falls below the yield on a short-term Treasury, such as the 3-month T-bill. That is unusual because longer-term bonds typically pay investors a richer yield in exchange for tying up their money for a longer period.

Inverted yield curves generally mean that investors foresee a recession and will compel the Fed to slash rates. Inverted curves often predate recessions. Still, it can take as long as 18 or 24 months for the downturn to arrive after the yield curve inverts. A short-lived inversion occurred this week when the yield on the two-year Treasury briefly fell below the 10-year yield as it did temporarily in April. Many analysts say, though, that comparing the 3-month yield to the 10-year has a better recession-forecasting track record. Those rates are not inverting now.

Powell has said the Fed’s goal was to raise rates to cool borrowing and spending so that companies would reduce their huge number of job openings. In turn, Powell hopes, companies won’t have to raise pay as much, thereby easing inflation pressures, but without significant job losses or an outright recession.

“I do expect that this will be very challenging,” Powell said. ’It’s not going to be easy.”

Though economists say it’s possible for the Fed to succeed, most now also say they’re skeptical that the central bank can tame such high inflation without eventually derailing the economy.

Deutsche Bank economists think the Fed will have to raise its key rate to at least 3.6% by mid-2023, enough to cause a recession by the end of that year.

Still, many economists say any recession would likely be mild. American families are in much better financial shape than they were before the extended 2008-2009 Great Recession when plunging home prices and lost jobs ruined many households’ finances.

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