The Observatory: Employee Compensation
Strong Incomes Remain A Drag On Profits
Welcome to The Observatory. The Observatory is how we at Prometheus monitor the evolution of the economy and financial markets in real time. The insights provided here are slivers of our research process that are integrated algorithmically into our systems to create rules-based portfolios.
Our primary takeaways are as follows:
Our estimates for real incomes showed a sequential increase of 0.15%. Nominal income increased marginally, primarily driven by real wage growth and employment. Consequently, this strength has flowed into headline GDP via stable consumption expenditure.
However, this sequential strength in nominal income has become a drain on corporate profits as income growth has outpaced consumption growth. Zooming in, our estimates show that the household contributions to profits are now in contractionary territory.
In the context of markets, even though equities have witnessed a deceleration in earnings expectations, the current level earnings expectations are beginning to look increasingly rich relative to the macroeconomic backdrop.
Our latest estimates for September showed real employee income increased by 0.15%. This data showed a deceleration in the quarterly trend relative to the one-year trend. We show the evolution of the sequential data below:
This estimated real income data came alongside a nominal income change of 0.24%. We can decompose this nominal wage growth into growth from employment, hours worked, real wages, and wage inflation, which contributed 0.16%, -0.29%,0.27%, and 0.1%, respectively, to nominal income. We show the sequential evolution of this compositional data below:
