US Wage Growth Worries Investors

• US Wage Growth Worries Investors

Rising cost of production amid a 3.1 percent jumped in U.S wage growth worries investors ahead of 2019 as they are concerned profit growth may fall faster than feared.

Despite strong quarterly results, rising labor costs are troubling companies in the S&P 500. Companies noted that labor costs were up when compared to similar quarter last year.

“Wage pressures have been building for some time, but we finally saw them really pop … in the October jobs report, so I think that’s going to continue to be an issue,” said Kristina Hooper, chief global market strategist at Invesco in New York.

Next week, businesses in the retail sector including Walmart, Marcy are expected to announce results. While investors will be looking to hear the impact of rising labor costs on business profits.

Strategists from Morgan Stanley said in a note that hotels, restaurants, retailers, energy equipment and services, and IT services will be most affected by wage growth.

The Employment Cost Index, which measures labor costs, rose 0.8 percent in the third quarter after a 0.6 percent increase in the second quarter, bringing yearly increase to 2.8 percent. Another indication of inflationary pressure.

“When salaries do jump to levels that would cause inflation, then that could negatively impact earnings growth,” said Peter Cardillo, the chief market economist at Spartan Capital Securities in New York.