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

27 mins ago - Health

Axios-Ipsos poll: Federal response has only gotten worse

Data: Axios/Ipsos poll; Note ±3.3% margin of error for the total sample size; Chart: Andrew Witherspoon/Axios

Americans believe the federal government's handling of the pandemic has gotten significantly worse over time, according to the latest installment of the Axios/Ipsos Coronavirus Index.

Why it matters: Every other institution measured in Week 29 of our national poll — from state and local governments to people's own employers and area businesses — won positive marks for improving their responses since those panicked early days in March and April.

Updated 2 hours ago - Politics & Policy

Coronavirus dashboard

Illustration: Sarah Grillo/Axios

  1. Politics: The swing states where the pandemic is raging — Pence no longer expected to attend Barrett confirmation vote after COVID exposure.
  2. Health: 13 states set single-day case records last week
  3. Business: Where stimulus is needed most.
  4. Education: The dangerous instability of school re-openings.
  5. States: Nearly two dozen Minnesota COVID cases traced to 3 Trump campaign events
  6. World: Unrest in Italy as restrictions grow across Europe.
  7. Media: Fox News president and several hosts advised to quarantine.

Hurricane Zeta makes landfall in Mexico ahead of expected arrival in U.S.

Hurricane Zeta's forecast path. Photo: National Hurricane Center

Hurricane Zeta made landfall on Mexico's Yucatan Peninsula as a Category 1 storm late Monday packing maximum sustained winds of 80 mph, per the National Hurricane Center.

The state of play: Louisiana Gov. John Bel Edwards (D) declared a state of emergency as Zeta strengthened into a hurricane earlier Monday.