Lauding Labor
As Labor Day approaches, we see a trend in wage growth that bodes well for the economy, but poses an obstacle for businesses trying to manage wage cost pressures. ​​​​

Chart for AOM​​

  • The Federal Reserve Bank of Atlanta calculates wage growth by comparing year-over-year data for the same households in an effort to depict the true underlying trend. Recent data suggests wages are accelerating, growing 4.3%, the fastest since before the Global Financial Crisis.

  • Higher skilled workers are seeing faster wage growth than lower skilled workers. By gender, wage growth is roughly equal.

  • Accelerating wage growth hasn’t translated into faster inflation. Indeed, inflation is significantly below the Federal Reserve’s target of 2%. The historically strong relationship between wages and prices has seemingly broken down as explained in Alger On the Money “What Economists Are Missing​.”

  • Of course, higher wages are problematic for some companies, particularly those for which employee compensation is a large percentage of profits; examples include retailers and restaurants. Software companies and health care equipment providers, however, don’t have the same issue with wages because they pay a lower proportion of compensation relative to their profits.

The views expressed are the views of Fred Alger Management, Inc. as of August 2019. These views are subject to change at any time and they do not guarantee the future performance of the markets, any security or any funds managed by Fred Alger Management, Inc. These views are not meant to provide investment advice and should not be considered a recommendation to purchase or sell securities.​

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