Monday, May 5, 2014

The Biggest Risk For The Stock Market: Wage Growth

Although it would be great (and long overdue) news for most Americans, rising wage inflation would, if it moves from Q1 company anecdotes to economy-wide, absolutely kill stocks. The bedrock of the market is zero interest rates as far as the eye can see (or 12-18 months ahead which is about as far ahead as The Market looks). Wage inflation north of 2% will get the Fed to tighten ASAP, regardless of whether offset by productivity growth. Why? Because productivity is virtually impossible to measure for the entire economy.  Even more worrying than reports of 3%+ wage hikes are concerns like those expressed below by Lyondell - that the "surplus labor" may be of significantly lower quality. 

Addressing investors and analysts in March, Sergey Vasnetsov, the company's senior vice president of strategic planning, cited "escalation of wages" and "tight availability of qualified labor."

LyondellBasell CEO James Gallogly elaborated last week, saying labor quality had declined as well, reducing productivity. He predicted both trends would intensify as competing projects are started in the next several years.

Some companies are beginning to notice upward pressure on wages
http://online.wsj.com/news/articles/SB10001424052702303417104579541590916787898

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