What Amazon's Minimum Wage Hike Says About The U.S. Economic Cycle

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by: Hedgeye
Summary

Amazon announced it would raise its minimum wage to $15 per hour.

Wage growth accelerating could cause a "margin squeeze," says Macro analyst Christian Drake.

"We're at peak margins, wage inflation is picking up, we're facing a Quad 4 environment [growth and inflation slowing] and we're also facing impossible growth comps."

Amazon (AMZN) grabbed headlines this week, announcing it would raise its minimum wage to $15 per hour.

While the stock has slipped since the news - and pulled down the Consumer Discretionary sector down with it - Hedgeye Macro analyst Christian Drake notes that the announcement points to larger concerns in the Macro outlook:

Rising wages and narrowing margins.

"If the cost to make stuff - that's wage growth - is rising faster than the price you can sell that stuff - that's your broader inflation, that equals a margin squeeze," Drake explains in the video below.

"We're at peak margins, wage inflation is picking up, we're facing a Quad 4 environment [growth and inflation slowing] and we're also facing impossible growth comps as we move into and through 2019."

In other words, the Amazon news could be another sign of how late in the cycle the economy is getting.

Watch the video above for more.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.