To: ild who wrote (11436 ) 4/6/2004 11:45:47 PM From: ild Read Replies (3) | Respond to Another interesting chart from CI:idorfman.com A few messages in the above chart are simply striking. First, there has clearly been longer term deterioration in this relationship. But the deterioration really begins in the mid-1970's. Just about the time that globalization was beginning to take hold in terms of what was to become a secular phenomenon. Secondly, despite all of the stock options compensation hoopla of the mid-to-late 1990's, wages and salaries as a percentage of GDP spiked up more strongly than anything seen since the 1960's. The labor market was tight, plain and simple. For now, we are seeing the exact opposite over the past four years. If this chart does not speak to ongoing and significant slack in the domestic labor market, then we just don't know what does. Finally, the above chart also goes a long way toward explaining why corporate profits have been so strong over the last year. Corporations are benefiting quite handsomely from the large slack in the domestic labor pool. Ironically, with households incredibly financially levered relative to any time in modern economic history, now is exactly the time that households are in need of wage inflation. Will corporations ultimately hollow out their own end market consumers by keeping a tourniquet on wage growth? Set against a backdrop of significant price competition, it sure appears to us that we are well on the way to traveling down that very road. Again, great for corporations and possibly stock prices over the short run. Longer term, this trend suggests a very significant consumer led recession is all but inevitable.
