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Illustration: Rebecca Zisser/Axios
Companies again are complaining about rising wages and the potential impact on corporate profits, but history has shown that higher pay doesn't squeeze S&P 500 companies' profit margins, Axios' Courtenay Brown writes.
What it means: Profit margins have rebounded from recession lows, and are at the highest level in at least a half-century. But wages haven't kept pace.
What they're saying: Shake Shack blamed lower profit margins this quarter on "significant headwinds around labor costs."
Executives outside of services-oriented industries are talking about the rising wage impact, too.
There are 2 factors at play:
This year, 19 states had minimum wage hikes, effective Jan. 1, impacting 5.2 million workers across the country, according to the Economic Policy Institute.
Bottom line: Companies have levers to pull to offset any costs from wage hikes — and they are pulling them.
Labor's share of domestic income has "barely recovered in this expansion from lows last seen when the U.S. was pulling out of the Great Depression," the Wall Street Journal points out. Meantime, business profits have skyrocketed from 12% of GDP in the 1980s to more than 20% now.
It turns out a company's reputation — good or bad — doesn't make much difference in the stock market.
The big picture: Results from the Axios Harris Poll 100, a new partnership between Axios and Harris Poll, found little difference between the performance of shares for the 10 companies that had gotten the biggest ranking improvements and those with the biggest ranking declines.
What they're saying: "Shareholders care about reputation, only in regards to return," Brian Battle, director of trading at Performance Trust Capital Partners, tells Axios.
Harris Poll CEO John Gerzema agrees, but says that in 20 years of the poll he's seen these things catch up with companies.
"In any given year we don't expect to see financial performance and reputation move in lockstep because shareholder value is often not correlated with the public interest. So many companies — even sectors like FAANG — can take reputational hits and still grow, at least in the short term. But over time, they risk losing market value by not being aligned with changing societal tastes."
Methodology: The Axios Harris Poll 100 survey was conducted November through January in a nationally representative sample. One group, 6,118 U.S. adults, was asked to identify the two companies they believe have the best and worst reputations. Then, the 100 “most visible companies” were ranked by a second group of 18,228 adults across key dimensions of corporate reputation attributes.
Venezuela has ratcheted up its debt over the past few years, even as the country has been officially cut off from international credit markets and is facing U.S. sanctions.
What's happening: A new debt estimate from the Institute of International Finance finds the country has been issuing a steadily growing pile of debt through state-owned oil company PDVSA and private debt deals with the likes of China and Russia. But the central government also has managed to run up significant debt.
Details: IIF economists tracked debt to exports and found that Venezuela's external debt is about 738% of its exports. That's more than 4 times the average for comparable emerging and frontier markets. It's also more than 200% higher than the level of debt to exports IIF estimated Venezuela carried just 2 years ago.
Because Venezuela hasn't kept reliable economic data for years and has barred bodies like the IMF and World Bank from conducting their own research, it's not even possible to determine Venezuela's debt to GDP ratio.
On the bright side: Nomura's head of Latin America fixed income strategy, Siobhan Morden, tells Axios she expects that Venezuela will be in much better position to pay off investors once a new government is in place.
A new policy designed to attract investment to low income communities may not benefit rural areas and the most impoverished communities, Axios' Stef Kight reports.
Between the lines: The majority of what are being called "opportunity zones" — economically distressed census tracts nominated by governors to receive special corporate tax breaks — lie within large metro areas. While most have low median income projections, quite a few are in relatively prosperous areas of major cities like Washington, D.C. and San Francisco, according to data collected by Develop LLC.
Dion's thought bubble: The opportunity zones could be boon for low-income communities, but they may really be a once-in-a-lifetime opportunity for the wealthy.
Investors can use money from large capital gains like the sale of a business or a major stock position that they would have had to pay taxes on and instead invest in projects, which are typically real estate, in the approved zones.
If they remain invested for 5 years, investors can exclude 10% of the gain from taxation. If they hold for 7 years, 15% is excluded. And if they remain invested for at least 10 years, any gains from their investment would be tax-free, CNBC notes.
By the numbers: Only 3% of opportunity zones have a projected median household income of $75,000 or more, but certain well-known metro areas have a much larger concentration of these communities.
What to watch: Investors looking to take advantage of the new tax policy are faced with deciding whether to invest in communities where there is the most need or invest in impoverished pockets of areas that are already doing relatively well.