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Real Wage Gains…Nice While They Lasted (And They Didn’t Last Long)
With today’s release of the inflation report for May, we can have a look at what’s going on with real (i.e., inflation-adjusted) hourly and weekly earnings for most workers. It ain’t pretty.
As shown in the Figure (after the break), hourly and weekly wages for the 80% of the workforce holding non-managerial jobs are trending down pretty sharply this year. Thanks to a few months of very mild inflation readings last fall, wages grew steeply, but only for two months. Most recently, inflation has been outpacing wage growth on a monthly basis, though given the very strong real growth in the fall, wages remain above their levels of one year ago.
The recent trend is due to higher inflation and slightly slower nominal wage growth, but going back to early 2004, with the exception those few strong months, real wages have fallen fairly consistently.
Note that this is occurring despite the fact that unemployment is relatively low. In fact, nominal hourly wage growth has decelerated, from an annual rate of 4.3% last December to 3.8% last month. Meanwhile, higher energy costs have led to faster price growth, and the result is falling real wages for most workers.
Financial markets are loving today’s inflation report, because the core measure—excluding energy and food costs—is up only 0.1%, compared to 0.7% for the overall measure. It’s a good, microcosmic example of the split in fortunes in today’s economy. The Dow’s up 100 points last I looked, while working families are facing rising energy and food costs with a shrinking paycheck.
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Well, those working families should just buy stock and... oh, wait... never mind...
thosethingswesay.blogspot.com
June 15, 2007 10:05 AM | Reply | Permalink
You mean: "Let them eat cake" ? :-)
June 15, 2007 10:10 AM | Reply | Permalink
I listened to one report that attributed the stock market rally to "insignificant wage pressure."
The good times for the investor class are evidently "subsidized" by the lower 80% of wage earners, who are, with good reason, reluctant to agitate for higher wages in the global economy, as we know it.
June 16, 2007 10:20 AM | Reply | Permalink
Relative to what?
With the increase in "flexible" temporary and ongoing employment, a far greater portion of the unemployed labor hours in today's economy are in underemployment rather than in complete unemployment.
If 200 people who want full time work are employed for 3/4 time, or if 150 of those people are employed full time and 50 fully unemployed, its the same unemployed 2,000 hours of labor that week. In the former case, more common today, we ignore the unemployed labor while in the latter case, more common in the 1960's, when unemployment above 3% would have been seen as a problem, we count it.
As long as the Fed looks at official unemployment numbers that refrain from giving a full accounting of unemployed labor hours, and considers any wage growth at all as an inflationary threat, as opposed to wage-cost inflation,
... and on the fiscal front we have runaway trade deficits with much government deficit spending being directed to a foreign war ...
... we will continue to see the economy run at less than full throttle, and slack labor markets will continue to hold wage growth down.
June 16, 2007 1:39 PM | Reply | Permalink
One of the things I wish third party economists would look at is the methodology BLS uses to compute the CPI. Obviously straight increases in prices should be relatively easy to calculate. However, when the BLS makes subjective adjustments to actual price increases to reflect changes in "value" political spinning or gaming the true results can occur.
An example of what the BLS does is: say the price of a Chevrolet Impala goes up 3% this year. But the new Impalas are equiped with 4 speed automatic transmissions instead of last years 3 speed transmission,the BLS could say that improvement was worth 3% of the car and thus reflect a zero price increase in the CPI. This "value" adjustment occurs in the CPI valuation of virtually all tangible goods.
I bring this up not because I found my tinfoil hat but it's hard for me, and everyone I know, to believe core inflation is really as low as 2.0% to 2.5%.
June 16, 2007 3:08 PM | Reply | Permalink
What's funny is all the cheerleading about "good times for investors."
The Nasdaq is still at half the level of its high.
It took the S&P and the Dow 7 years just to regain it's losses.
Those are "Good times?" Wages are not only falling but overall market returns of 6-8% aren't enough for a lot of people to save for retirement. It's only been good times for firms like Goldman Sachs who make money not off of returns but from volatility.
thosethingswesay.blogspot.com
June 17, 2007 9:08 AM | Reply | Permalink
destor23:
You make a good point about the mixed fortunes of "investors." There are investors, then there are INVESTORS. Anybody with a 401k is an investor, technically, but few of us have the resources to micromanage our portfolios and play the daily peaks and valleys - the volatility you speak of.
The big investors need the little investors to be in the game, but they get a lot more moves than the rest of us do.
June 17, 2007 9:23 AM | Reply | Permalink
Exactly. During the bear market, which the technicians pretty much say lasted from spring 2000 through 2002, the investment banks were posting great profits, driven by their proprietary trading desks.
I'm not sure what to make of it, exactly. The "buy and hold" theory for long term individual investors has a lot of data supporting it, but the fact is that the outsized profits are ALWAYS made by the prop desks at investment banks and they trade more than all of those so-called "cowboy" hedge funds combined.
Almost makes me think that since those banks clear trades for hedge funds and mutual funds that they have some sort of advantage. But it couldn't be that, could it? I mean, the banks tell us they maintain strict controls to keep conflicts of interest out of the equations. And why wouldn't we believe the banks?
Naturally, those were sarcastic questions...
thosethingswesay.blogspot.com
June 17, 2007 11:56 AM | Reply | Permalink
I wouldn't necessarily have drawn the conclusion that some just have the ability to be better investors. I'd have said that a bigger factor is that some just have the clout to take home more money and pay less tax on it; if they happen to invest it, they invest it. That is, we were seeing larger executive salaries, more stock options, lower taxes in higher brackets, more job risk in the middle, stagnating wages there, and so on.
Thus, for me, the stock averages don't so much add to the picture as keep from distracting us from what we already worried was the picture. It keeps us from confusing vast gains in profits or individual income with other traditional measures of economic growth.
John
http://www.haberarts.com/
June 18, 2007 1:04 PM | Reply | Permalink