Recent data from the labour market and the National Federation of Independent Business shows that wages will be picking up quickly this year. The NFIB compensation plans is now at the highest point in the last twenty years. Small businesses expect to raise wages, and a majority of industries are experiencing wage increases. We will see higher growth rates for hourly wages and the Employment Cost Index.
As a reminder, the downside of higher wages is that our VP US Wages Leading Indicator leads corporate profits and return on equity (ROE). This is a structural relationship we often highlight in our Leading Indicator Watch reports. Despite cyclical upturns, we expected to see a trend towards lower corporate profits and lower ROE, as wage capture in the economy rises.
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Source: Bloomberg, Macrobond and Variant Perception