If you want to see the box that the Fed is in, consider the disconcerting story of Wabash National (WNC) . You may not know this Lafayette, Indiana company -- which is one of the largest truck body manufacturers in the country, with a specialty in vehicles designed for the last mile, the sweet spot of e-commerce.
With the demand for trucks off the charts, particularly for e-commerce, the stock of Wabash had been among the hottest in the market -- flying from $19 to $26 between December of 2017 and February 2018, on the strength of incredible demand.
But then the president decided to retaliate against the Chinese for years of trading abuses, and the raw costs for Wabash went through the roof.
At the same time, the state of Indiana has become one of the tightest employment markets in the country, something we knew from when Thor Industries (THO) -- the Elkhart, Indiana company and largest recreational vehicle builder in the country -- came on Mad Money and talked about how the labor shortage and the tariffs had hurt its bottom line.
It's not going to get any better. While Wabash's demand remains strong, it doesn't think there's a chance to find more labor through 2018, so it will have to pay a ton of overtime. Of course, there's no end to the tariffs, either.
Now if you marry the comments of Wabash with what Barry Sternlicht of Starwood Capital Group told me last week about how construction is slowing in this country because the price of steel has made it uneconomic to build, you begin to realize that the tariffs have really begun to hurt the bottom line of the country to the point that it's affecting demand. Hmm, maybe that's why the stocks of all of the steel companies have been faltering.
So now put yourself in the shoes of the Fed. They want to cool the economy with one more hike this year and three next year in order make it so the Wabash's of the world won't be part of a wage inflation spiral.
But will rate hikes create more people in Indiana? I would argue that all it will do is to cool truck body orders and hurt numbers even further. And who know how bad it will be for the construction companies Sternlicht deals with.
The one thing we know it won't do, though, is lower the price of steel -- given the tariffs.
So, what will the higher rates do? What will be the impact? Wabash will get fewer orders, something that will hurt its bottom line regardless of the labor costs. You will see the same thing for Thor, as higher mortgage rates means lower orders for the manufacturer of mobile homes, which is already being plagued by higher gasoline prices, another cost that can't be brought down by the Fed.
Oh and for Sternlicht's construction clients? Still one more obstacle to profitability.
Now, I can be sympathetic to Fed chair Powell. He's looking at employment costs and he doesn't want all of that overtime because it's inflationary. But I say that's a small price to pay for a strong economy. Why not just let those workers make more money? What's so wrong with that? Wabash will sort it all out. So will Thor, eventually. Meanwhile, the tariffs will slow things down enough that perhaps they will do the job for the Fed.
Whatever, just when a down-and-out manufacturer, one with a stock that is well below where it was back 15 years ago, finally has hope for a big year, it gets the triple whammy of higher labor costs, higher steel costs and higher interest rates. To me, it's an awfully high price to pay for trying to break a cycle that's largely man made.
