Wage Inflation is a quintessential late cycle phenomenon and the slowly-then-faster cyclical evolution in earnings growth is empirically consistent across expansions.
The official Unemployment Rate – which continues to breach new lows – may indeed overstate prevailing tautness in the domestic labor market. But the preponderance of data is suggesting we’re (finally) set to enter the wage acceleration phase:
In short, while the post-Global Financial Crisis march to labor market tautness has been stubbornly slow and characterized by weak returns to labor, the notion that wage inflationary pressure is not (finally) beginning to percolate is a mischaracterization.
Organic, late-cycle wage growth in conjunction with unprecedented, late-cycle fiscal stimulus layered atop an already taut economy should drive more conspicuous improvement in wage growth in the coming quarters.
And, with global growth decelerating, the domestic profit cycle set to slow and corporate margins at peak, the implications to corporate profitability as income gains shift in favor of Main Street are not inconsequential.
Join us Thursday, July 12th at 10:00am ET for an institutional conference call hosted by Hedgeye CEO Keith McCullough and the broader Hedgeye Research Team to discuss these dynamics from a top-down and bottom up perspective. On the call we will detail the following:
- Why wage growth is set to markedly accelerate in 2H18;
- What industries are likely to see the greatest uptick in unit labor costs; and
- Which among the stocks we cover are likely to see the most material EPS erosion as a result.