The Next Big Problem: "Stagflation Is Starting To Show Across The Economy"
By Tyler Durden
In the past few months, the Bureau of Labor Statistics has gone out of its way to show that U.S. worker compensation is finally rising. There is one problem with that: while that may be true on an hourly basis…
… on a weekly basis, the picture is vastly different. What is happening is that weekly wage growth have gone nowhere in years, but because the average hours worked per week has declined and today hit a 2 year low of 34.4, it translates into more money per hour worked.
But let’s assume that wages, or at least the perception thereof, is indeed rising – is this helping the average American? Well, as we showed earlier this week, the net “after expense” income of average Americans measured in real dollars has declined from $17K in 2004 to $6,000 in 2014 because as wages have declined dramatically, expenses have surged. In fact, according to the recent Pew study, by 2014, median income had fallen by 13 percent from 2004 levels, while expenditures had increased by nearly 14 percent, As such a 2.5%, or 3.5% or even 10% increases in wages will not manage to offset the surging expenditures, mostly on rent.
All of this you will never see discussed in a sellside research report, which instead relies on the basic hourly earnings headline numbers. Instead, you will see charts like this from Wells Capital’s Jim Paulsen.
And yet, even the analysts who are only looking at the most rudimentary data are now warning that a new problem is emerging for the US economy, a problem which is always present whenever wages are rising, while overall economic growth is stalling (as it is currently according to the Atlanta Fed with a 0.7% Q1 GDP) and corporate profits are about to plunge by the most since the financial crisis: stagflation.
In a note earlier today, Deutsche Bank laid out the following ominous warning:
Worry not about the eight per cent drop in forecast earnings in the upcoming quarter reporting season. That aggregate figure is well telegraphed. Instead, pay attention to those companies with wafer-thin margins. Every year since the crisis, S&P500 stocks in the lowest quartile of ebitda margins have outperformed the market. Until, that is, last year when these least profitable companies trailed by 11 per cent. That is because after holding steady for six years, their already low margins nearly halved to 4.5 per cent while the median for S&P500 companies barely budged from 20 per cent. Benign cost pressures in recent years have allowed even the laggards to keep up. But if commodity prices start to rally, for example, or low unemployment finally gives employees some bargaining power, those companies living on minuscule margins may really start to sweat.
What Deutsche Bank is referring to is the following chart which shows the …read more
Source: The Next Big Problem: "Stagflation Is Starting To Show Across The Economy"
