Higher Interest Rates Slam Stocks and Profits But Spare Workers
Tight hiring markets mean companies have to raise wages, and labor’s share of GDP rose to 44% last year, up from 42% in 2013.
It’s common to hear analysts say that the stock market is not the economy. For decades that meant equities were soaring on the heels of low-interest-rate policies, while many lower-wage workers were being left behind. A growing share of corporate profits went to investors and higher-level executives, and rank-and-file employees got a smaller piece of the pie.
Now, as the Federal Reserve raises interest rates to the highest levels in 40 years, that equation is changing. Companies face labor shortages unseen in the modern economy and are being forced to keep raising wages, particularly for employees who serve in lower-paid, front-line jobs. The latest earnings reports from Home Depot Inc. and Walmart Inc. contain perfect examples of this: Home Depot said it would spend $1 billion to boost compensation for hourly workers, and Walmart has raised its minimum wage and increased benefits.