Monday, November 12, 2018

Worries Over Wages

In a strong quarter for earnings results, climbing labor costs have become a growing future concern, with more than a dozen companies in the S&P 500 mentioning them in conference calls so far this earnings season. That is up from just a handful of companies that noted these concerns over a similar period in the year-ago quarter.

In the recent U.S. jobs report for October, wages recorded their largest annual gain in nine and a half years. The Employment Cost Index, the broadest measure of labor costs, increased 0.8 percent in the third quarter after a 0.6 percent rise in the second quarter, putting the year-on-year rate of increase at 2.8 percent.

These wage pressures are widely expected to be a factor in declining earnings growth in 2019. Earnings growth for S&P 500 companies has been forecast to slow to about 9 percent next year following 2018’s tax-fueled earnings gains, estimated at 24 percent, according to IBES data.

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