U.S. Aug real earnings fell 0.3 pct
Tuesday September 16, 8:29 am ET
Looks like a 1, 2 punch to purchasing power of better than -7% per year in purchashing power. -.3% in earnings and +.3% in CPI.
http://quote.bloomberg.com/apps/news?pid=10000103&sid=a4h64I0kirWE&refer=news_index U.S. August Consumer Price Index Rises 0.3%; Core Up (Update1)
Sept. 16 (Bloomberg) -- U.S. consumer prices rose for a third straight month in August, reflecting higher costs for gasoline, college tuition and prescription drugs, government figures showed. Airfares and computers were cheaper.
The consumer price index rose 0.3 percent after 0.2 percent increases in the prior two months, the Labor Department said in Washington. Excluding volatile food and energy costs, the so- called core index rose 0.1 percent after rising 0.2 percent. The core reading was 1.3 percent higher than it was in August 2002, the smallest year-over-year gain since February 1966.
Companies are finding it difficult to raise prices for fear of losing sales, economists said. That's put pressure on profit margins, limiting the ability of companies to invest or hire and restraining the economy. Federal Reserve policy makers, who meet today on interest rates, have signaled concern about a sustained drop in prices.
``We are enjoying such strong productivity gains that this is going to hold down inflation,'' said Lyle Gramley, a senior adviser at Schwab Capital Markets and former Fed governor. ``The likelihood is that inflation will continue to decline, and that will permit the Fed to stay on the sidelines for an extended period.''
Central bankers are forecast today to hold their benchmark overnight bank lending rate at 1 percent, the lowest since 1958, based on the prediction of 99 of 100 economists in a Bloomberg News survey. The Fed has kept its rate low to spur growth, ward off deflation and stimulate hiring.
Some policy makers forecast reduced rates of inflation through next year even as the economy recovers, a sign the central bank may be in no hurry to raising the benchmark lending rate.
2004
``There is a reasonable chance of further disinflation in 2004'' and unemployment will be slow to fall, said Fed Governor Ben S. Bernanke during a Bloomberg News economic forum in New York on Sept. 4. Right now, ``inflation is at the low end of the range that is conducive to good economic performance, and I think that the risks are downward.''
Economists had forecast a 0.4 percent increase in the consumer price index, based on the median of 68 forecasts in a Bloomberg News survey. The survey found a median estimate of a 0.2 percent increase in core prices.
The CPI is the government's broadest gauge of costs for goods and services. Almost 60 percent of the CPI covers prices consumers pay for services, ranging from medical visits to airline fares and movie tickets.
So Far This Year
So far this year, consumer prices have been rising at a 2.4 percent annual rate compared with a 2.7 percent pace in the same eight months of last year, the Labor Department said. Prices excluding fuels and food have been rising at a 1.2 percent annual rate compared with a 2.2 percent pace in the same eight months in 2002.
Energy prices, which account for about a 14th of the index, rose 2.7 percent in August after rising 0.4 percent in July. Gasoline prices surged 6.2 percent, while natural gas costs fell 1.3 percent.
Retail gasoline prices rose to an average of $1.66 a gallon last month from $1.55 in July as a pipeline rupture in Arizona on July 30 aggravated concerns over low inventory levels nationwide. Last year, retail gasoline prices averaged $1.38 a gallon.
Education and communication expenses rose 0.5 percent for a second straight month. College tuition and fees rose 2.5 percent, the biggest increase since September 1991. State colleges have been raising tuition to make up for reduced government funding.
University of Maryland
The University of Maryland's Board of Regents approved a 16 percent increase in undergraduate tuition for fall 2003. The Board blamed ``severe reductions in the State's appropriations to the university,'' according to the university's website.
At the University of Virginia, undergraduate tuition and fees for first-year and transfer students rose to $3,169 for 2003- 2004 from $2,120 in 2001-2002, according to the university's website.
New-car prices rose 0.5 percent last month after falling 0.1 percent in July. Vehicle prices have fallen 1.8 percent this year at an annual rate. The cost of clothing rose 0.1 percent after no change in July.
Housing costs, which include some energy prices and account for one-third of the CPI, rose 0.1 percent in August after rising 0.2 percent. The cost of hotel stays and other lodging away from home fell 0.3 percent after rising 0.7 percent a month earlier.
Services
Food prices, which account for about a fifth of the index, rose 0.3 percent in August after a 0.1 percent increase the month before. Prices of tobacco and smoking products increased 0.6 percent after surging 1.2 percent.
Service prices rose 0.2 percent last month and are up 3.1 percent over the last year. The cost of medical care rose 0.2 percent, after rising 0.5 percent in July. Prescription drug prices increased 0.5 percent.
Airfares declined 1.6 percent in August, the biggest decrease since October 2002. Computer prices declined 2.9 percent and are 24.1 percent lower in the last 12 months.
Price gains in some services have been slowed by unemployment, which is holding back wages, economists said. Services account for about 85 percent of gross domestic product. The U.S. economy unexpectedly lost 93,000 jobs in August for a seventh straight decline.
Real Earnings Fall
The Labor Department also reported that real average weekly earnings fell 0.3 percent in August. Average hourly earnings rose 0.1 percent and average weekly hours were unchanged.
The consumer price report is the last of three measures of inflation for August. Import prices rose 0.2 percent last month, a slower pace than in July, restrained by the biggest drop in consumer goods prices since November, the Labor Department said last week. Producer prices in August excluding energy and food rose 0.1 percent after a 0.2 percent gain, the Labor Department said on Friday.
Last Updated: September 16, 2003 09:00 EDT
Well, when we earn less, it just motivates us to work harder, and be more productive. No wonder people are working so hard. Prices are going up, and their wages aren't. I would be "motivated" to work harder, if I was terrified of being outsourced, downsized, at a time when my paycheck wasn't keeping up with the rate of inflation.
What I find intriguing about all of this is the tremondous rise in productivity. You would think more productive workers should be paid better. As a result, I think our labor sector is poised for a very strong rebound. Cheaper, more producitve labor? Sounds like an offer you can't refuse.....
I don't think fear can cause a nearly 5 percent increase in productivity. And besides, prices are going up slowly. Some inflation is good. Too much is very bad.
I think you have to look at how productivity is calculated. Second quarter real GDP growth was only 1.68% vs the reported 3.1%. Government hedonics was used to calculate the 3.1%. Productivity is a function of hours worked and GDP growth.
If you halve GDP growth then I would think you would have to halve productivity growth. Combine the "real" productivity growth with a core CPI of 0.1% and I don't see pricing power returning and employment rising.