04.23.2025
Growth to Gold: Wall Street’s Favorite Trade Just Changed
According to the most recent Bank of America Global Fund Manager Survey, gold has surged to the top of the…
The chart above shows labor share on the left axis, and corporate profits as a percentage of GDP on the right axis. Labor share is calculated by the U.S. Bureau of Labor Statistics, and measures the percentage of output that employers pay in employee compensation. Corporate profits as a percentage of GDP is calculated based on the U.S. Bureau of Economic Analysis (BEA). It includes income earned abroad by corporations.
Since the 1980’s until the most recent recession, the U.S. maintained relatively stable GDP growth. However, this growth was not evenly apportioned. During this time, income inequality increased, and labor’s share of output declined. Over the past decade this loss in income was supplemented with an increase in leverage, including mortgage debt. The subsequent consumer deleveraging has led to weak aggregate demand and tepid GDP growth out of the recession. With lower wage costs and new sources of global demand, corporate profits soared.
In the near term, these imbalances still seem firmly in place. Aggregate demand, and thus economic growth, is weak. Earnings growth remains comparatively strong. In the long-term, what may be good for the economy may or may not be good for corporations and the stock market. Wage inflation would improve household balance sheets by both increasing income and decreasing nominal debt burdens. However, higher costs would lead to declining corporate profits.
The opinions expressed herein are those of Marquette Associates, Inc. (“Marquette”), and are subject to change without notice. This material is not financial advice or an offer to purchase or sell any product. Marquette reserves the right to modify its current investment strategies and techniques based on changing market dynamics or client needs.
04.23.2025
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