Here Comes Your Raise

The compensation survey of the National Federation of Independent Business (NFIB) is typically a leading indicator of wage growth. It recently reached a multi-decade high, signaling that a likely increase in wage growth lies ahead. Despite the possibility of higher inflation (see market commentary), this may be good news for the U.S economy because higher wages can lead to increased consumer spending and ultimately drive up revenues for corporate America.
  

  • The NFIB is the U.S.’s leading small business association and its survey results contain a key economic gauge of future wages in the country. Currently this metric is at its highest level in nearly 30 years, indicating that wages may increase this year.

  • Job openings relative to the number of unemployed are at a record high, another likely driver of future wage growth.

  • Interest rates have historically followed wage increases higher; if this transpires, fixed income total returns may suffer.

  • While stocks have recently declined in part due to worries about wage inflation, we think a moderate rise in interest rates from low levels is unlikely to negatively impact the economy or equity valuations (see Alger Capital Markets, page 27).


The views expressed are the views of Fred Alger Management, Inc. as of February 2018. 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.

Risk Disclosures: Investing in the stock market involves gains and losses and may not be suitable for all investors. Growth stocks tend to be more volatile than other stocks, as the prices of growth stocks tend to be higher in relation to their companies’ earnings and may be more sensitive to market, political and economic development.

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