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Illustration: Rebecca Zisser/Axios

A growing number of U.S. companies are saying higher wages weighed on first quarter profits or will have a negative impact in coming quarters.

Why it matters: As workers finally start to see pay increases, one of the biggest drivers of high profit margins is under threat and Bridgewater, the world's largest hedge fund, warns corporate profits that have fueled the stock market boom may be peaking.

In the last 20 years union membership dropped and companies have had access "to pools of cheaper foreign labor and advancing automation technology," Bridgewater writes — all factors that have contributed to stagnant wage growth.

  • The economic boom has started to shift the balance of power in favor of workers. Unemployment is close to a half-century low and companies will need to up pay to attract would-be employers.
  • Higher wages haven't hit all-time high profit margins yet, as we've reported. "U.S. corporate profits as a percent of GDP averaged about 8% in the 20 years leading up to 2000, but have since risen by almost 30%, averaging 10.5%," according to Jim Paulsen, chief investment strategist at The Leuthold Group.

But here's what executives are saying, via earnings calls this quarter:

  • "It still feels like to us that there is ... more wage pressure than there has historically been," AutoZone CEO Bill Rhodes said.
  • "FedEx Ground operating results were negatively impacted by the inflationary impact of the tight labor market on our purchase transportation rates and employee wages," FedEx CFO Alan Graf said.

What to watch: The big question is whether companies can continue "to absorb higher wage bills without raising prices," as as Bloomberg's Matt Boesler points out. That could help even out profit margins.

  • That hasn't happened yet. We haven't seen a significant pick-up in inflation, bolstering the Fed's case to hold off on hiking interest rates and maybe even cut rates.

Go deeper:

Go deeper

Dion Rabouin, author of Markets
12 mins ago - Economy & Business

Biden's inflation danger

Illustration: Sarah Grillo/Axios

President-elect Joe Biden's $1.9 trillion stimulus proposal has economists and bullish market analysts revising their U.S. growth expectations higher, predicting a reflation of the economy in 2021 and possibly more booming returns for risk assets.

Yes, but: Others are warning that what's expected to be reflation could actually show up as inflation, a much less welcome phenomenon.

Ina Fried, author of Login
2 hours ago - Technology

CES was largely irrelevant this year

Illustration: Sarah Grillo/Axios

Forced online by the pandemic and overshadowed by the attack on the Capitol, the 2021 edition of CES was mostly an afterthought as media's attention focused elsewhere.

Why it matters: The consumer electronics trade show is the cornerstone event for the Consumer Technology Association and Las Vegas has been the traditional early-January gathering place for the tech industry.

The FBI is tracing a digital trail to Capitol rioters

Illustration: Sarah Grillo

Capitol rioters, eager to share proof of their efforts with other extremists online, have so far left a digital footprint of at least 140,000 images that is making it easier for federal law enforcement officials to capture and arrest them.

The big picture: Law enforcement's use of digital tracing isn't new, and has long been at the center of fierce battles over privacy and civil liberties. The Capitol siege is opening a fresh front in that debate.