A Middle-Class Squeeze Recipe: Flat Real Wage Growth With Prices Poised To Move Higher

We’ve been witnessing inflationary pressures in the monthly economic data over the last several months. Some of this has been higher raw materials due in part to trade tariffs and other input costs, such as climbing freight costs, as well as the impact of increased minimum wages in certain states. Habit Restaurant (HABT) noticeably called out the impact of wage gains as one of the primary drivers in its recent menu price increase.

This June 2018 earnings season, we’ve heard from a growing number of companies – from materials and food to semiconductor and restaurants contending with inflationary pressures – are looking to pass it through to consumers in the form of higher prices as best they can. The thing is, wage growth has been elusive for the vast majority of workers, especially on an inflation-adjusted basis. Keep in mind that is before we factor in the inflationary effect to be had if these escalating rounds of trade tariffs are in effect longer than expected.

As these price increases take hold and interest rates creep higher, it means consumer spending dollars will not stretch as far as they did previously.  Not good for consumers and not good for the economy but it offers support for the Fed to boost rates in the coming quarters and keeps our Middle-Class Squeeze investing theme in vogue.