American workers should see bigger paychecks this year as wages are expected to rise at the fastest rate in 15 years. An ultra-competitive jobs market is forcing employers to pay more to retain employees. Many companies are passing the cost on to customers in the form of higher prices. Straight Arrow News contributor Larry Lindsey warns of another consequence of higher payrolls. He says that while wages are going up in 2023, stocks will fall as corporate profits shrink.
The Atlanta Fed wage tracker, which looks at how much each individual worker’s pay goes up, found on average they’ve been going up at 5.8% over the last three months. On the other hand, inflation is only going up 3.8%. So at least in the last three months, we’ve had a situation where workers have been able to begin to catch up. That should continue.
Now, real wages going up has to come out of somewhere, and the place it’s going to come out of is profits. So if you get workers back to earning what they earned before the pandemic, then you’re going to see a one-sixth or 16% drop in corporate profits. That’s going to be bad news for stock prices. In addition, interest rates are going up. So bonds are becoming more profitable to own than stocks. Also, stocks are very, very overvalued. In the 10 years ending in 2021, we saw stock prices go up or all asset prices, capital prices go up by 124%; GDP only by 49%. So when the value placed on things like stocks goes up two and a half times as much as output, you know that they’re probably overpriced.
You can use a variety of metrics, but the odds are that from their peak at the end of 2021, stock prices are likely to fall between 35 and 40 percent. Now, they’re already down about half that amount. But you could see the Standard and Poor’s index, which is now around 3800, down from a high of 4800.. and up within 200 points or so, of the 3000 level.
We still have a big drop to fall.
