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

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

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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

Personal Savings Rate

Transfer Payments

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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17 Comments
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Eddie_T
Eddie_T
4 years ago
You bond guys are sorta like vultures, just wishing for bad luck to befall the stock market so you  can make a fast buck off the misery. Hoisington’s best years are always bear markets.
If the only tool you have is a hammer (Treasuries) then everything looks like a nail (Recession).
 I do wholehearted agree that the bang for every dollar of stimulus buck has been declining for a long time…and so central banks lack the ability to prop up inflated markets forever. So we will have recessions, which will allow money to be made on bonds from time to time.
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RonJ
RonJ
4 years ago
I believe the as yet unratified deal for the IATSE union was 3% a year for the next three years. 
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AWC
AWC
4 years ago
Meh,,,”Cost, Plus Margin Percent = Increased Costs will simply be passed on, and the Fed will print the difference. 
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oee
oee
4 years ago
Let me help you Mish. According to the US govt, Profits are doing…well.  They have been up on the last two GDP releases so I do not know what you are talking about.  See the S& P that has gone… up under the Biden/Harris Socialist** policies.
***Snark.
BTW, I am still waiting for my answer to my question about when the Robots will take over? 
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Doug78
Doug78
4 years ago
Labor is starting to recapture the part of increases in productivity that up to now had been captured by Capital. It’s a cycle and I am glad that it is happening and I hope it will continue for a good time. It should increase the purchasing power of the middle and lower classes without using transfer payments. 
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numike
numike
4 years ago
Is Hyperinflation Coming?
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Blurtman
Blurtman
4 years ago
The ususal sheeple placation shell game – when the nominal increase in wages means a real decrease in income due to the increase in inflation exceeding the increase in wages.
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anoop
anoop
4 years ago
i’m in the deflation camp.  
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TLinFL
TLinFL
4 years ago
Are people really getting raises, other than those at minimum wage? I’m expecting the normal 2% which will be pushed off to another 18 month cycle.
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Mr. Purple
Mr. Purple
4 years ago
Reply to  TLinFL
I intend to demand a 70% raise in January 2022, but that’s more because I was undervalued to begin with and my workload has quadrupled.
I expect there are many more like me with options.
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Zardoz
Zardoz
4 years ago
Reply to  TLinFL
I have been getting 6% in my professional salary for the past few years, an expect 10 or more this year to compensate for increased inflation. I’m being hit up relentlessly by recruiters, some offering 25% over what I’m making. The more skilled you are the more hounded you get .
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RunnerDan
RunnerDan
4 years ago
Sounds like the Fed should consider accommodative monetary policies.  Think they’ll oblige?
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Doug78
Doug78
4 years ago
About time.
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Tony Bennett
Tony Bennett
4 years ago
“What That Means For Profits”
…
Profit Scmofit … hoo cares?
Way back I said Bernanke first card trick would be to separate the stock market from economy (check).  The next trick would be separate profits from stock prices (check).
Liquidity all that matters (for now) … pathetic how “experts” hang on every utterance of a central banker.  Dovishness all that matters.
Until it doesn’t.
Getting close(r) to that point.  It will be a “light switch” moment.
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Tony Bennett
Tony Bennett
4 years ago
“Compensation costs for civilian workers increased 1.3 percent, seasonally adjusted, for the 3-month period ending in September 2021.”
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Sure, but will need validation.  2+ months of Q3 business had to “compete” with extra federal benefit $$s.
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EGW
EGW
4 years ago
Reply to  Tony Bennett
Not inflation adjusted I bet.
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Zardoz
Zardoz
4 years ago
Reply to  EGW
Increased salaries adjust inflation.
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