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Static Wages Sideline American Recovery

Posted by Joseph Trevisani on May 5, 2014 1:25:00 PM

In an economy that is more than two-thirds powered by consumer spending income levels can matter much more than job creation.

Another way to look at the difference between jobs and wages is to compare the amount added to national income by the creation of 288,000 new employees in April to a potential 0.1 percent increase in average hourly earnings

At the average per capita income of $43,000 those 288,000 new jobs will add $12.4 billion dollars in wages and purchasing power over the next year to American household budgets.

In April there were 145.7 million employed people in the United States. A 0.1 percent increase in the average hourly earnings, $430, over the entire working population would produce $62.7 billion in additional income. That is a fivefold increase over that effected by the April non-farm payrolls.  In the event average hourly earnings were flat in April according to the Bureau of Labor Statistics last Friday.

The economy would need to have created about 1.4 million new jobs in April to produce an equivalent improvement in national income to a 0.1 percent rise in average hourly earnings.

Over the past year wages have barely kept pace with inflation. In April average hourly earnings were 1.9 percent higher on the year; annual inflation was 1.5 percent in March. When corrected for inflation Americans' real wages were just 0.5 percent higher.

But even that paltry gain overstates the case.

Since the beginning of 2010 average hourly earnings have increased an average of 1.9 percent a year. Over that same period the consumer price index, the record of prices that consumer actually pay when they shop as opposed to the so called 'core' rate which removes food and energy prices, has averaged 2.0 percent. 

For more than four years the American consumer has not only made no progress on compensation and purchasing power but the average family has actually lost ground.

When Americans were asked in a recent poll about the state of the economy 74 percent said it still felt like the country was in a recession.

Look no further than the stagnation in wages for the reason.

Joseph Trevisani                                                                                                       

Chief Market Strategist

WorldWideMarkets Online Trading

Charts: Bloomberg





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