While cyclical factors are pushing wages higher, secular factors and structural forces are conspiring in the opposite direction. These factors include the growing impact of technology on a broader array of jobs, the global wage arbitrage and employer sponsored healthcare becoming a bigger part of employee compensation. These undercurrents are not new, and their effects on the labor market have been felt in some ways for decades. But together they help explain why real wage growth has remained lackluster even during periods of relatively strong growth.
The key takeaway for investors: Although lower gasoline and energy prices are a tailwind for consumers, over the long term spending is driven by growth in disposable income. With interest rates low and stock returns likely to be more muted, wage gains will need to drive income growth and here longer-term factors may dampen the cyclical upswing. This is why, for now, we remain neutral on consumer stocks even with the tailwind of $2 gasoline.
Source: Bloomberg.
Russ Koesterich, CFA, is the Chief Investment Strategist for BlackRock. He is a regular contributor to The Blog and you can find more of his posts here.