Wage pressures coming? U.S. companies start to sound the alarm

Thu Nov 19, 2015 5:14pm EST
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By Caroline Valetkevitch

NEW YORK (Reuters) - Early indications of wage pressures in pockets of corporate America have begun emerging in recent weeks, suggesting labor costs could be a bigger headwind for U.S. companies in 2016.

Over the course of the latest corporate earnings reporting season, executives from nearly 20 S&P 500 companies have flagged labor costs, shortages or wage pressure as headwinds.

That is up from about a dozen companies who singled out these concerns a quarter earlier and a year ago, a sign that more companies are talking about wage issues, an analysis of earnings season comments by Thomson Reuters showed.

Wage inflation has been largely nonexistent in the plodding economic expansion out of the Great Recession, a key factor behind the robust recovery in company profits over the past six years even as sales growth has remained muted.

Now, though, a combination of rising U.S. payrolls, political pressures to increase state and federal minimum wages and some industry-specific issues, such as expensive labor contracts in the airlines and automakers and labor shortages in construction, could finally be gelling to force up labor costs.

"The conditions are beginning to be in place for something that has been languishing really since the bottom of the recession," said Mark Dawson, chief investment officer at Rainier Investment Management in Seattle. "We're closer to the point where wage pressures in certain areas are increasingly going to be seen. I would expect it to be more of an issue next year."

Wage concerns that started popping up a year ago in a handful of industries such as fast food restaurants and retailers have persisted and are spreading to a more diverse range of companies, including homebuilding and construction companies and airlines.

Wal-Mart (WMT.N: Quote), the world's largest retailer, has said next year's earnings could decline as much as 12 percent, partly because of costs to raise entry-level wages.   Continued...

Merchandise is moved at a Wal-Mart Stores Inc company distribution center in Bentonville, Arkansas June 6, 2013.    REUTERS/Rick Wilking