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Wages Up the Most on Record (Series Dates to 2002), What That Means For Profits

Lacy Hunt pinged me with his thoughts on employment costs and corporate profits.
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Employment Cost Index 2021-Q3

The BlS released the Employment Cost Index numbers for the third quarter of 2021.

ECI Details 

  • Compensation costs for civilian workers increased 1.3 percent, seasonally adjusted, for the 3-month period ending in September 2021.
  • Wages and salaries increased 1.5 percent and benefit costs increased 0.9 percent from June 2021. 
  • Compensation costs for civilian workers increased 3.7 percent for the 12-month period ending in September 2021 and increased 2.4 percent in September 2020.
  • Wages and salaries increased 4.2 percent for the 12-month period ending in September 2021 and increased 2.5 percent for the 12-month period ending in September 2020. 
  • Benefit costs increased 2.5 percent over the year and increased 2.3 percent for the 12-month period ending in September 2020. 
  • Compensation costs for private industry workers increased 4.1 percent over the year. In September 2020, the increase was 2.4 percent. Wages and salaries increased 4.6 percent for the 12-month period ending in September 2021 and increased 2.7 percent in September 2020. 
  • The cost of benefits increased 2.6 percent for the 12-month period ending in September 2021 and increased 2.0 percent in September 2020.

Lacy Hunt Comments

The Personal Savings Rate is 7.5% in September 2021 versus 7.3% in December 2019.  

Real disposable income less transfer payments in September is below the level in February 2020. We borrowed $5.7 trillion and this is the net result - another example of a negative government multiplier. 

Productivity fell at a 3.5% annualized rate in Q3, with unit labor costs rising at 8.5% annualized. This means sequentially corporate profits fell at a 4% annualized rate in Q3.

Thus, the income side of the economy was more adversely affected than the spending side during the summer quarter.

The economy is very vulnerable and consumers are not in position to absorb large price increases in the pipeline unless the Fed accelerates money growth enough to offset the decline in velocity.

Just as happened during the tapering after Quantitative Easing 1, 2, &3, slower growth in the Fed's balance sheet will bring down M2 growth. This a result of the fully vetted Brunner/Meltzer equation, M2 = MB(monetary base) x m(money multiplier).

Velocity(V) continued to decline in Q3 and in view of likely further contraction in MRPD (marginal revenue product of debt), the erosion in velocity is far from over.

The budgets of modest and moderate households will be further disrupted by price increases.  

Lacy

Real Personal Income Less Transfer Payments

Real Personal Income Less Transfer Payments 2921-Q3

Personal Savings Rate

Personal Savings Rate 2021-Q3

Transfer Payments

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For a discussion of transfer payments and today's income reports, please see 

Still Bullish on Treasuries 

For discussion of the current picture, please see MishTalk TV Episode #3: Lacy Hunt Still Bullish on Treasuries.

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