The confluence of the report, Apple's response, and trends in China itself means that they will need to hire 20% more employees to conform to the per worker hourly reduction pledge. Wage prices in China reliably go up 15% per year and the Chinese Rimimbi currency is all but locked against the dollar.
Now this does have the offset of paying less overtime by about 10-15%.
But overall we should see a labor component cost increase of about 15% per year with it being a bit front loaded as compliance ramps.
The single easiest way to have things cost us less is to borrow and spend less at the Federal government level. It is causing currency destruction at a rate of about 7% a year reliably under the Obama Presidency. We currently deficit spend at the shocking rate of about $250B a MONTH and we were promised stimulus would be one time and about $866B with a then ANNUAL deficit of about $450B.
The TARP, Fed actions, and such are large in scale to the tune of about $7T, about the same scale as the liquidity lost when home prices vaporized $7.5T in about a year and a half. The Fed has "sterilized" those actions, but they are real, have to be unwound some day and there are hard costs to real people to keeping interest rates ridiculously low. Also most of TARP and bank liquidity has been paid back with over $100B in net profit paid into the treasury already.
All of that stuff together makes it cost us more for gasoline (30% since Obama's budget was passed on currency destruction alone, no issues from oil speculation or Iran included in that), food, commodities, and payments to China.
In the CNBC interview the FLA President characterized the forward leaning of Apple and Foxconn on labor issues in China as likely to lead to a "race to the top". For those of us critical of Chinese policies of various types, this is only good. It is also having direct impact on large parts of Chinese society.
So I call it a mixed picture but far more good than bad, and slightly bad for forward earnings of AAPL.
Rocketman
Very good post.