PIMCO's thesis: corporate profits will be replaced by labor wage hikes

[blazespinnaker]

And thus inflation will be neutralized.

Agree? Disagree?

[metalman]

Re: PIMCO's thesis: corporate profits will be replaced by labor wage hikes

inflation is never "neutralized." firms have for years avoided passing on to consumers the input costs from rising energy and health care expenses by making cuts elsewhere. the usual early inflation cycle tricks are tried while firms wait and hope for the inflation to go away. cut the number of employees, thus the rising unemployment number, but also note falling productivity nonetheless. make the candy bars smaller, use cheaper ingredients in the restaurant food, reduce service quality (hey, didn't there use to be more folks at the home depot, and didn't they used to take returns without asking so many questions?). for a while they do everything but raise prices. but that's starting to happen. but as pimco says, no one wants to be the first to raise prices in a competitive market running at high capacity utilization globally. but they will. pimco's wrong. they may understand econ and bonds but don't know nuthin about business.

[Jim Nickerson]

Re: PIMCO's thesis: corporate profits will be replaced by labor wage hikes

And thus inflation will be neutralized.

Agree? Disagree?

I thought inflation was caused by excess money and credit, never heard corporate profits or wages caused inflation.

[metalman]

Re: PIMCO's thesis: corporate profits will be replaced by labor wage hikes

I thought inflation was caused by excess money and credit, never heard corporate profits or wages caused inflation.

Speaking of credit inflation...

Consumer credit jumps on charge card debt

Surge in charge card usage causes consumer credit to jump by over $10 billion in June, compared to the $4 billion expected by analysts.

http://money.cnn.com/2006/08/07/news...n=money_latest

[blazespinnaker]

Re: PIMCO's thesis: corporate profits will be replaced by labor wage hikes

Well, a lot of factors contribute to inflation .. I am referring here to the inflation as caused by wage hikes.

It's an interesting thesis.

I think the question we have to ask ourselves, can they simply pay less people more?

[Finster]

Re: PIMCO's thesis: corporate profits will be replaced by labor wage hikes

Inflation will not be "neutralized" except by printing less money. PIMCO could be right about declining corporate profits; after all profit margins have been in the 99th percentile. Not sure US wages will rise much, though, at least not for US workers that have to compete with third world labor.

Wages for workers outside the US are very likely to rise, though. At least in US dollar terms. As the dollar loses value to inflation, it will simply take more dollars to buy the same stuff. That includes stuff like oil, gas, coal, gold, copper, and even manufactured goods from the BRIC bloc.

The inflation is not new, however. In the 1990's its effects showed up in the financial markets, leading those who look only at consumer prices to falsely believe it had been vanquished. But the Fed continued to artificially expand money and credit, pushing rates down further with each cycle. Once the financial markets became saturated, the next round of inflation moved into housing. And from there into foreign coffers and commodity prices. It's been running around eight percent or so for most of the past three years. It's only recently begun to register in our understating and lagging official figures.

[bart]

Re: PIMCO's thesis: corporate profits will be replaced by labor wage hikes

...
Not sure US wages will rise much, though, at least not for US workers that have to compete with third world labor.

...

The inflation is not new, however. In the 1990's its effects showed up in the financial markets, leading those who look only at consumer prices to falsely believe it had been vanquished.
...
It's been running around eight percent or so for most of the past three years. It's only recently begun to register in our understating and lagging official figures.

About the only thing I'm reasonably certain of is that wages will go up as they have been doing for years... and that it'll be spun. Look behind the curtain and adjust them just by the CPI or a John Williams (shadowstats.com) adjusted CPI and its an entirely different picture.




Very much agreed on your ball park 8% number - obviously. The spin and FOMC inflationary expectation control is something to behold.

[hayfield]

Re: PIMCO's thesis: corporate profits will be replaced by labor wage hikes

I think the question we have to ask ourselves, can they simply pay less people more?

Would paying fewer employees higher wages be inflationary or deflationary?

[blazespinnaker]

Re: PIMCO's thesis: corporate profits will be replaced by labor wage hikes

Would paying fewer employees higher wages be inflationary or deflationary?

Perhaps it might be stagflationary... Fewer people can afford higher priced goods.

[WDCRob]

Re: PIMCO's thesis: corporate profits will be replaced by labor wage hikes

If the RoC minus CPI-U minus "CPI-Lies" #s above are correct we'll have either wage appreciation or a revolution the next time credit gets tight.

Just using quick estimates... Williams has real hourly wages dropping by about 1% in 1998 and 1999, roughly 3% from 2000 to 2004 and ~5% for 2005 and 2006.

That's a compounded drop of 19% in only eight years. I guess something has to account for the home equity extraction numbers, but that seems almost too steep to believed.

[Finster]

Re: PIMCO's thesis: corporate profits will be replaced by labor wage hikes

About the only thing I'm reasonably certain of is that wages will go up as they have been doing for years... and that it'll be spun. Look behind the curtain and adjust them just by the CPI or a John Williams (shadowstats.com) adjusted CPI and its an entirely different picture.




Very much agreed on your ball park 8% number - obviously. The spin and FOMC inflationary expectation control is something to behold.

Howdy stranger! ;-)

Whether wages go up will depend mightly on what you measure them with. They may go up in dollars, but down in comparison to wages in the rest of the world. In fact you can pretty much take that to the bank. As long as we have the globalists in control in Washington, there's no getting around the progressive equilibration of US and third world wages. It's like having a container with a divider in the middle separating two different levels of water. Remove the divider, and the water goes down on the high side as it rises on the low side.

Now you might make believe the water on the high side is still rising by measuring it with a ruler that shrinks faster than the water goes down. So we might crank out 2%-4% dollar-denominated wage "gains" as the purchasing power of each dollar falls by 6%-8% annually.

If that has a ring of familiarity to it, that's because that's what's been going on for four years now. Your inflation-adjusted wage chart (especially the sans lies version) illustrates that nicely.

[bart]

Re: PIMCO's thesis: corporate profits will be replaced by labor wage hikes

Howdy stranger! ;-)

Whether wages go up will depend mightly on what you measure them with. They may go up in dollars, but down in comparison to wages in the rest of the world. In fact you can pretty much take that to the bank. As long as we have the globalists in control in Washington, there's no getting around the progressive equilibration of US and third world wages. It's like having a container with a divider in the middle separating two different levels of water. Remove the divider, and the water goes down on the high side as it rises on the low side.

Now you might make believe the water on the high side is still rising by measuring it with a ruler that shrinks faster than the water goes down. So we might crank out 2%-4% dollar-denominated wage "gains" as the purchasing power of each dollar falls by 6%-8% annually.

If that has a ring of familiarity to it, that's because that's what's been going on for four years now. Your inflation-adjusted wage chart (especially the sans lies version) illustrates that nicely.

Yes indeed, I do plead guilty to being strange... ;)

About my only comment, and its pretty much just a quibble, is on your example numbers. I suspect they're more than a little low, given the longer term woefully unrecognized US and especially international trends on money creation and inflation.

I read a great article yesterday by Gary Dorsch entitled Central Bankers Operating behind "Smoke and Mirrors" ( http://www.safehaven.com/article-5681.htm ) that really rips the covers off what is happening internationally. I expect 8-10% increases in nominal US wages next year, at a minimum.

[Finster]

Re: PIMCO's thesis: corporate profits will be replaced by labor wage hikes

Yes indeed, I do plead guilty to being strange... ;)

About my only comment, and its pretty much just a quibble, is on your example numbers. I suspect they're more than a little low, given the longer term woefully unrecognized US and especially international trends on money creation and inflation.

I read a great article yesterday by Gary Dorsch entitled Central Bankers Operating behind "Smoke and Mirrors" ( http://www.safehaven.com/article-5681.htm ) that really rips the covers off what is happening internationally. I expect 8-10% increases in nominal US wages next year, at a minimum.

Oy. The "example numbers" were intended to be qualitative, not quantitative. Not to be construed as actual reality. ;-)

I took a quick cruise through the Dorsch piece and am generally copasetic with it. The Fed has gone through a remarkable progression of retreating from using broad price indices as a measure of inflation to using "core" indices - and then now that even the "core" indices are registering above-target inflation, it is resorting to forecasts of lower figures to come. Acting much less like the inflation hawk it posed as a couple months ago and a lot more like a cornered rat. And since most folks only look at currency movements in relation to each other, the CB's are all giving each other cover by more or less inflating in lock step in the apparent hope no one will notice.

Speaking of quibbling, however, your forecast of 8%-10% nominal wage increases in the US next year is about 8%-10% too high. Well, maybe not that much too high, but I see inflation continuing at around 8% or so and little prospect that wages will begin to keep pace. Not for 2007 at least. Due to the aforementioned global labor arbitrage the US worker just won't get that much pricing power. That year will bring more talk of "stagflation" as the real economy fails to keep up with the rate of inflation. From whence does this outlandish prognostication come?

[bart]

Re: PIMCO's thesis: corporate profits will be replaced by labor wage hikes

I took a quick cruise through the Dorsch piece and am generally copasetic with it. The Fed has gone through a remarkable progression of retreating from using broad price indices as a measure of inflation to using "core" indices - and then now that even the "core" indices are registering above-target inflation, it is resorting to forecasts of lower figures to come. Acting much less like the inflation hawk it posed as a couple months ago and a lot more like a cornered rat. And since most folks only look at currency movements in relation to each other, the CB's are all giving each other cover by more or less inflating in lock step in the apparent hope no one will notice.

Speaking of quibbling, however, your forecast of 8%-10% nominal wage increases in the US next year is about 8%-10% too high. Well, maybe not that much too high, but I see inflation continuing at around 8% or so and little prospect that wages will begin to keep pace. Not for 2007 at least. Due to the aforementioned global labor arbitrage the US worker just won't get that much pricing power. That year will bring more talk of "stagflation" as the real economy fails to keep up with the rate of inflation. From whence does this outlandish prognostication come?

Me, outlandish? :eek:

Good word on the Fed - "posed". What they say and what they do sure is "special" (as in http://www.nowandfutures.com/grins/special.wav ), much as Dorsch's piece illustrated on most of the rest of the Central Banks.

As far as my 8-10% guess, it may be a bit high or perhaps it'll occur in 2008. But I see it as pretty much baked in the cake due to existing central banks trends, once appropriate lags are factored in. Folk are becoming aware of how much real inflation there is, even with the smokescreen of a slowing (or recessionary or even stagflationary) US economy, and wage demands are inevitable.
Part of it is based on my expectation of even higher wage increases in other countries too, especially emerging and the BRIC countries. There's also the probability of some type of "helicopter drop" in '07 too, and that's part of my 8-10% guesstimate.

My work is also showing a real US inflation rate of about 8% now and also moving up to over 10% by early next year. My best guesstimate of world inflation is 10-12% now and moving up to over 15% no later than mid '07.

We are in sync on most wages not keeping pace with inflation though, much as they have since no later than the late '70s.

[Finster]

Re: PIMCO's thesis: corporate profits will be replaced by labor wage hikes

Me, outlandish? :eek: .

Can't have you going too long without being 'Finned' ... (insert little twisted evil thingy ;-)

Good word on the Fed - "posed". What they say and what they do sure is "special" (as in http://www.nowandfutures.com/grins/special.wav ), much as Dorsch's piece illustrated on most of the rest of the Central Banks.

As far as my 8-10% guess, it may be a bit high or perhaps it'll occur in 2008. But I see it as pretty much baked in the cake due to existing central banks trends, once appropriate lags are factored in. Folk are becoming aware of how much real inflation there is, even with the smokescreen of a slowing (or recessionary or even stagflationary) US economy, and wage demands are inevitable.
Part of it is based on my expectation of even higher wage increases in other countries too, especially emerging and the BRIC countries. There's also the probability of some type of "helicopter drop" in '07 too, and that's part of my 8-10% guesstimate.

My work is also showing a real US inflation rate of about 8% now and also moving up to over 10% by early next year. My best guesstimate of world inflation is 10-12% now and moving up to over 15% no later than mid '07.

We are in sync on most wages not keeping pace with inflation though, much as they have since no later than the late '70s.

On general inflation we definitely are in sync. We've had just a bit of a slowdown, but chances are it doesn't have legs. I still think we're in a very seventiesish type environment. But as they say, history doesn't repeat so much as it rhymes. This time around I think the wage increases will be felt more abroad while in the US they will have a hard time keeping up with the cost of living. Say if we get those 8%-10% wage increases domestically it'll probably be associated with 10%-15% increases in the price of imported goods - which happens to be just about everything we buy - including energy and manufactured goods.

We might even be getting "helicopter drop lite" already. The Bernanke Fed seems more intent on trying to engineer a "soft landing" for the housing market than stemming inflation.