Low confidence
The US labour market has been strong. Low unemployment and rising wages reflect the robust US economic recovery. Despite these conditions that favour the working population the US consumer is telling pollsters that they feel depressed.
Despite a buoyant US labour market, with low unemployment, the US consumer is feeling down in the dumps (recessions shaded).
Source: Bloomberg, Artorius
This breakdown in the relationship between the buoyant labour market and consumer confidence may be temporary, but it does highlight that the recovery is not normal. Unlike the recovery after the 2008 recession, when earnings rose faster than prices, the US worker is seeing their wages fall in real terms.
The wage inflation versus price inflation debate is key in driving corporate profits. Whilst there are many factors (innovation, taxes and financial engineering) in determining corporate profits, if prices rise by more than wages, then typically profits increase.
Policy and Profits
Sustained equity market progress may depend on the outlook of peace, policy and profits.
The risk of policy tightening hangs over the market, as does high inflation. But profits can grow with the benefit of inflation.
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