Saturday , January 23 2021

Investors focus on retailers as wages are rising

Retail retailers and restaurants tend to have large employee bases and are expected to be among the companies most likely to feel the biggest impact of higher wages.


Morgan Stanley strategists wrote in a memo this week that hotels, restaurants, retailers, energy equipment and IT services and services may be among the industries most exposed to rising wages.

"The wage pressures have built us for a long time, but we have actually seen them pop … at the October work report, so I think this will continue to be a matter," said Kristina Hooper, head of global market strategy at Invesco in New York.

Concerns about the potential for wage inflation have increased as economic data has shown that US labor market conditions are tightening.

Wage pressures could become an issue, as the increase in earnings per share for S & P 500 companies is expected to slow down to around 9% next year after tax gains in 2018, accounting for 24%, according to IBES data from Refinitiv.

In the recent US jobs report in October, wages recorded their biggest annual profit in 9-1 / 2 years.

A separate report showed that the labor cost index, the broader labor cost index, grew by 0.8 percent in the third quarter following a 0.6 percent increase in the second quarter, recording an annual growth rate of 2.8 percent one hundred.

A record of 7.14 million open jobs is not covered and employers have been forced to raise wages to attract workers. Inc. said last month that it would raise its minimum wage to $ 15 an hour for US employees from November.

Moreover, the chances for a higher federal minimum wage rose this week as the Democrats won control of the House of Representatives in the Congress elections.

Among the companies that have talked about the impact of higher wages, McDonald's Corp Director General, Kevin Ozan, said on October 23 that labor costs were among the margins in the last quarter.

Chipotle Mexican Grill Chief Financial Officer John Hartung told analysts that the company expects a rise in labor costs in the fourth quarter and that Clorox Co's executives said wage inflation was higher than expected.

In addition, Clay Williams, chairman and chief executive officer of National Oilwell Varco, who reported quarterly revenue that lost expectations, said "steel costs and labor costs continue to grow, eliminating profit margins from price rises in many of our businesses ".

Of course, the reform of the Congress tax passed at the end of 2017 has helped companies to offset a lot of additional costs, and earnings growth in the third quarter of the S & P 500 is on track to be the highest since 2010.

Lower tax rates will allow higher wages and sustainable margins without the need to raise prices, according to Russell Price, senior economist at Ameriprise Financial Services in Troy, Michigan.

Goldman Sachs strategists, in a recent note, reported that wage inflation is one of the main risks to the S & P 500's profit margins as well as higher tariffs and rising debt costs.

"Managers have expressed their confidence in the ability to offset tariff costs by rising prices or re-structuring the supply chain, but executives have seen increased competition for labor and wage pressures."

Some businesses, especially retailers, may have to go through higher labor costs to maintain limited margins.

"When wages go to levels that will cause inflation, then this could negatively affect earnings growth," said Peter Cardillo, chief economist at Spartan Capital Securities in New York.

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