By Caroline Valetkevitch
NEW YORK (Reuters) - U.S. companies are warning about rising wages eating into profit margins, increasing investor worries that next year's expected drop in profit growth may be sharper than feared.
Amidst overall strong quarterly results, climbing labour costs are a growing concern, with more than a dozen companies in the S&P 500 <.SPX> mentioning them in conference calls so far this earnings season.
Retailers and restaurants tend to have large employee bases and are expected to be among companies most likely to feel the biggest impacts of higher wages.
"Wage pressures have been building for some time, but we finally saw them really pop ... in the October jobs report, so I think that's going to continue to be an issue," said Kristina Hooper, chief global market strategist at Invesco in New York.
Worries about the potential for wage inflation have been picking up as economic data has shown that U.S. labour market conditions are tightening.
Wage pressures could increasingly be an issue as earnings-per-share growth for S&P 500 companies is expected to slow to about 9 percent next year following 2018's tax-fuelled earnings gains, estimated at 24 percent, according to IBES data from Refinitiv.
In the recent U.S. jobs report for October, wages recorded their largest annual gain in 9-1/2 years.
A separate report showed the Employment Cost Index, the broadest measure of labour costs, increased 0.8 percent in the third quarter after a 0.6 percent rise in the second quarter, putting the year-on-year rate of increase at 2.8 percent.
A record 7.14 million open jobs are unfilled, and employers have been forced to boost wages to attract employees.
Among companies that have talked about the impact of higher wages, McDonald's Corp
Chipotle Mexican Grill
In addition, Clay Williams, president and chief executive of National Oilwell Varco
"Managements expressed confidence in their ability to offset tariff costs through price increases or supply chain reorganization. However, executives noted increased competition for labour and intensifying wage pressures," they wrote.
Some businesses, especially retailers, may need to pass along higher labour costs to maintain slim profit margins.
(Reporting by Caroline Valetkevitch; Editing by Alden Bentley, James Dalgleish and Sonya Hepinstall)
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