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Could rising pay trip up US equities?

by LLB Editor
28th May 21 11:39 am

The news that Amazon is looking to hire 75,000 more workers in the US and Canada is eye-catching enough, even for a firm that employs 1.3 million around the globe, according to its website. But it is the offer of an average of starting salary of $17 an hour, plus a potential signing-on bonus of $1,000, and benefits such as health and dental care, that really stands out.

 “While the average American worker now earns around $30 an hour, this proposed Amazon package easily exceeds the current US federal minimum wage of $7.25 and therefore potentially supports the argument that wages are going up, with all of the inflationary implications that brings,” says Russ Mould, AJ Bell Investment Director.

“If wages do start to gallop higher as companies struggle to find suitable staff, investors must assess the possibility of a three-part chain of events:

  • Wage inflation accelerates
  • That in turn could drive wider inflation and even force central banks to tighten monetary policy
  • Higher wages mean higher costs – and potentially lower profits and margins for companies. Pressure on margins and profits, could in turn, come at an inconvenient time for the US stock market, where headline indices trade at or near to record highs and valuations are, on some metrics, potentially looking stretched.

“The US downturn of 2020 looks unusual in many respects, but one of them is how wages look relatively unaffected, despite a surge in unemployment.

“Even now the jobless rate stands at 6.1% according to the headline U3 rate and 10.4% based on the U6, which includes discouraged and part-time workers who would like full-time jobs, as well as those who are seeking a new post. Wage growth looks to be cooling but only after an unusual spike last year and pay is still marching higher.

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