The Cellar - Real Wages Still DECLINING

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Real Wages Still DECLINING

Real have declined for the 2nd straight year. This decline greatly affects the ability of American consumers to buy their own production. Combined with an anticipated decline in home equity extraction, consumer spending would also be anticipated to decline. The declining ability to borrow, coupled with declining wages, reduces the money available for consumer spending. Given that consumer spending is 2/3 of economic activity, and 2/3 of our GDP, this portends a slowdown in economic growth as well.

Though nominal wages have increased 3.5% over the last year, when adjusted for inflation they have DECLINED 0.6%. January's real (inflation-adjusted) hourly wage was $8.18/hour (in 1982 dollars). This is a -0.6% change since January 2005's $8.23/hour. Worse still, this is a DECLINE of 1.1% since January 2004's $8.27/hour. This information can be found at the United States Bureau of Labor Statistics at http://data.bls.gov/PDQ/servlet/Surv...=CES0500000049.

Despite Bush Administration spin, American workers are losing ground. They're ability to purchase production through wages is steadily declining. Since consumer spending is 2/3 of all economic activity, this erosion in purchasing power spells trouble for our economy.

Over the last 2 years, consumer spending increases have been sustained through increased borrowing alone. Home equity extraction for 2005 was $243 billion, according to Bloomberg News http://www.bloomberg.com/apps/news?p...d=aE50ss.wrOM0

Home equity extraction would account for 63.3% of our economic growth in 2005. As such, home equity extraction could account for nearly all of the 66.7% (2/3) fraction attributable to consumer spending. Thus it is increased home equity extraction, not wages, that have maintained consumer spending, consumer demand, and GDP growth.

Consumer spending increases are necessary for continued economic growth. According to Bloomberg News, home equity extraction is expected to DECLINE $126 billion from $243 billion down to $117 billion in 2006. This would be a 52% decline, and a 52% decline in consumer spending power. This source of spending is nearly equal to all of our spending growth. With a 52% reduction in consumer spending power, spending would also decline 52%. If 2006 consumer spending remains 2/3 of of economic activity (and GDP), it would reduce our GDP growth by the same 52%. A 52% reduction in this year's 3.2% GDP growth would leave a 2006 GDP growth of only 1.54%.

Considering 2 straight years of declining real wages, there is no reason to think real wages will rise in 2006. As such, wages won't make up for the spending loss from decreased home equity extraction. Less consumer spending will result in less consumer production demand, less demand for workers to provide that production, and declining wages and employment as a result.

It definitely looks like we're in for a year of significantly slower economic "growth." How much slower remains to be seen. With a December Durable Goods Order decline of 10%, the biggest decline in 5 years, the economy is not looking good.

unlawflcombatnt

You're cherry-picking the numbers to build your conclusion.

Just throw one more variable in there: number of jobs. There were a million jobs created in the last 8 months. If the average hourly wage drops a few cents, and two million more people make that per hour, what happens to consumer spending power?

What does your Bloomberg source say if you read the whole thing?

Quote:

The economy probably will grow at a 4 percent annual rate this quarter, slowing to 3 percent by the last three months of the year, according to a Bloomberg survey from Jan. 31 to Feb. 8.

4 percent is AWESOME, while 3 percent is merely GREAT.

Quote:

According to Bloomberg News, home equity extraction is expected to DECLINE $126 billion from $243 billion down to $117 billion in 2006. This would be a 52% decline, and a 52% decline in consumer spending power. This source of spending is nearly equal to all of our spending growth. With a 52% reduction in consumer spending power, spending would also decline 52%. If 2006 consumer spending remains 2/3 of of economic activity (and GDP), it would reduce our GDP growth by the same 52%. A 52% reduction in this year's 3.2% GDP growth would leave a 2006 GDP growth of only 1.54%.

A 52% decline in home equity extraction would 52% of 66.7% reduction in consumer spending power, not 52% of 100%.
That's a 34.7% decline in consumer spending power not 52%. :eyebrow:
Still and all, not good.

Where is our unlawful combatant now?

NYTimes: Long a Laggard, Wages Start to Outpace Prices

The economy has slowed a little, but wages are now rising fast. They really are the "lagging indicator".

Even the Times now sees it.

I toldya unlawfl was from the "things are secretly bad" school of economics.

Toldya, toldya, toldya. Suck it:

Quote:

With energy prices now sharply lower than a few months ago and the improving job market forcing employers to offer higher raises, the buying power of American workers is now rising at the fastest rate since the economic boom of the late 1990s.

The average hourly wage for workers below management level — everyone from school bus drivers to stockbrokers — rose 2.8 percent from October 2005 to October of this year, after being adjusted for inflation, according to the Bureau of Labor Statistics. Only a year ago, it was falling by 1.5 percent.

In recent years, many Americans grew anxious about the future and economists questioned whether the recovery from the 2001 recession would ever produce genuine gains for ordinary workers.

The fall in unemployment to 4.4 percent and the recent surge in wages, however, raise the prospect that the job market could be on the brink of another strong run, much like the one that lifted incomes in the late 1990s.

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rose 2.8 percent from October 2005 to October of this year

Climbed two steps after falling down an entire flight of stairs? :confused:

Climbed faster than it had been climbing before, that is. The numbers the Times quotes are still a little cherry-picked... they can't resist. Here is the money graph, so to speak:

http://cellar.org/2006/wages.jpg

YOu have to admit that the minimum wages paid in your country, over all are pretty bad compared to many other western nations though...don't you?

There are not many minimum wage jobs here, and most of those are "starter" jobs or work for green card immigrants. Meanwhile our unemployment rate is 4.4% (compare France @ about 10%). Jackie's kid gets paid almost twice minimum... and he's doing roofing, his job is to hit things with a hammer.

Any kind of jobs to do with 'trades' are fairly highly paid here atm too. In fact, good tradesmen earn more than professionals in a lot of cases.

Figures for unemployment wouldn't really have much a chance of getting much higher than that considering the social services - or lack of - would they?

I'm not trying to be rude or anything. I'm just always astounded to see the way some people live in the US that's all. It's really hard to grasp from where I'm sitting because our systems over here are so much different, and yet both our countries are based on the same kind of political ideals.

Here's an example. In most hospitality jobs, waiters wouldn't get out of bed for under $20/hour, but there's not really a tipping system here, which leaves the onus on the restarauntaur to pay better wages to get better staff.

Unemployment in the US is considered a major, major problem when it reaches about 6%.

Well that's an extra couple of million needing welfare or unemployment benefits isn't it. A jump of a couple of percent puts a big strain on the economy.

The unemployment rate here is higher than 4%...close to 7% I think, but I'd need to look that up. It's usually somewhere around that. During the early 90's it was up close to 10% in most places.

I looked it up. According to a report in Reuters, the unemployment rate is 4.6%, so that's not too bad at all. Much better than close to 7%. Perhaps that was a local figure I heard somewhere.

Wasn't part of the political programs in recent years to create more "better paying jobs" versus more minimum wage positions? If so, is that plan starting to take effect?
I AM asking.

For the most part, wages are set by markets and there's not much the government can do about it except set standards and protocols.