Producer prices fell dramatically until this year and that also helped profits. The Asian crisis intensified competition and resulted in lower prices for globally traded inputs. But that also drove down prices for finished goods. Now that labor markets and oil prices have started tightening, the profit picture is looking increasingly grim. Labor costs have been very stable even as wages rose, because of declining benefits costs.
Employee compensation is broken out into wages and benefits to show the changing distribution.
From 1992 to 1994 wages were hit hard as companies took advantage of the economic slump to cut labor costs. From then on, the savings came from cutting employee benefits, particularly medical care, as the HMO revolution took hold. The benefit share has dropped an equivalent amount since 1993. High earnings have enabled firms to hold back on borrowing throughout this expansion, but that is beginning to change. Both long and short term borrowing are on the rise as firms find it increasingly difficult to finance investment from internal funds.