Wages in US show steepest fall in rate since 1991

Financial Times ^ | 5/11/05 | Christopher Swann

[ninenot]

Real wages in the US are falling at their fastest rate in 14 years, according to data surveyed by the Financial Times.

Inflation rose 3.1 per cent in the year to March but salaries climbed just 2.4 per cent, according to the Employment Cost Index. In the final three months of 2004, real wages fell by 0.9 per cent.

The last time salaries fell this steeply was at the start of 1991, when real wages declined by 1.1 per cent.

Stingy pay rises mean many Americans will have to work longer hours to keep up with the cost of living, and they could ultimately undermine consumer spending and economic growth.

Many economists believe that in spite of the unexpectedly large rise in job creation of 274,000 in April, the uneven revival in the labour market since the 2001 recession has made it hard for workers to negotiate real improvements in living standards.

Even after last month's bumper gain in employment, there are 22,000 fewer private sector jobs than when the recession began in March 2001, a 0.02 per cent fall. At the same point in the recovery from the recession of the early 1990s, private sector employment was up 4.7 per cent.

"There is still little evidence that workers are gaining much traction in their negotiations," said Paul Ashworth, US analyst at Capital Economics, the consultancy. "If this does not pick up, it raises the prospect of a sharper slowdown in consumer spending than we have been expecting."

Economists are divided over the best source for measuring pay increases in the US, since the government releases three main measures.

A gauge of average hourly earnings is released with the employment report. This rose by 0.3 per cent in both March and April and 0.1 per cent in February. Even with a slight rise in the hours employees are working, from 33.7 to 33.9, this suggests wages are struggling to keep pace with inflation. The gauge covers non-supervisory workers, about 80 per cent of the workforce.

The Bureau of Economic Analysis figures for personal income showed wages rising at close to 6 per cent in 2004 but slowing down since. This measure also showed wages rising by just 0.3 per cent in each of the past 2 months. This is a broader gauge and includes small businesses and professional partnerships, but it measures total corporate wage bill rather than wages per person.

The Employment Cost Index, seen by some as the most reliable measure, excludes overtime and professional partnerships.

[ninenot]

There's an interesting series of articles on PRChina's "economy" running in The Daily Reckoning.

The author spent a couple of weeks there, looking at investment possibilities and learned that the PRChina banks are in effect making 'evergreen' loans to industry over there--no repayments are required.

Well, without the encumbrance of debt-reduction, one's cashflow is seriously ENHANCED, no?

The author is enamored of China as an investment opportunity, but puts up large "caution" flags as to what to look at. Needless to say, banks in China are not recommended.

[Nowhere Man]

What is the new thing average Americans will do? Nanotechnological brain surgery? Flying to Mars? Financial services to the rest of the world? What is your prediction?

Well, we could always apply to Starfleet Academy, become Jedi Knights or become black hole engineers. /sarcasm> B-P

Nuke NAFTA, De-CAFTA-nate CAFTA, and repeal the GATT gaffe, bump!!!!

[Jaysun]

Bravo.

[Sender]

What is the new thing average Americans will do? Nanotechnological brain surgery? Flying to Mars? Financial services to the rest of the world? What is your prediction?

You want fries with that? For here or to go?

[Sender]

Yes, humor aside, we are all pretty well off. And I say that from the perspective of someone who was laid off at the end of January and we got by on my wife's salary since then, and now I'm starting a new job for far less money.

But at least I can say that I haven't missed any meals, I'm not being shot at or beheaded, I can say whatever I darn please without worrying about some terrible punishment, and I get to drive around and eat Buffalo wings. Is this a great country, OR WHAT?

[Nowhere Man]

You want fries with that? For here or to go?

Sure and supersize me too. B-P Welcome to the new America. B-P

[SwordofTruth]

What is the new thing average Americans will do? Nanotechnological brain surgery? Flying to Mars? Financial services to the rest of the world? What is your prediction?

Since research and development is also being outsourced, whatever the "new" thing is, probably won't be invented by an American nor produced by Americans. If this trend is not stopped then Americans will have an ever-increasing lower standard of life to look forward to.

[B4Ranch]

Big business has spent 148 million to get CAFTA passed. Think of the 7 million for NAFTA in comparison. We are heading right for a $700 billion deficit.

Fiscal responsibility is a class the Bush Administration skipped

[Red6]

"There is a difference. 1970-1985 factory jobs did not get outsourced to China. " You say

No, these jobs were going to Mexico, Europe in part, Japan, S. Korea and Taiwan. Even Ford started to have engines built in Europe for some of their US Mustangs......

"What is the new thing average Americans will do? Nanotechnological brain surgery? Flying to Mars? Financial services to the rest of the world? What is your prediction?" You say

Most products have a "life cycle". Introduction-growth-maturity and decline phase in life.

Interestingly- This has been going on for a LONG LONG time, yet despite all the "We are going down!" prophesies, new markets, industries etc have always popped up (Which you sarcastically note.

But we just recently DID have the first private spaceship.

Genetic engineering IS coming and growing.

Biotech is growing................

The F16 is dying the F35 is coming.

Red6

[1rudeboy]

You want fries with that? For here or to go?

Some folks sure aim high.

[A. Pole]

Genetic engineering IS coming and growing.

And the average Americans will be working in this field? How many millions of them will do it?

Why this genetic engineering will be cheaper to do in USA?

[gathersnomoss]

Bush...

[Sender]

Well, either McDonald's or carbon nanotech research, I haven't decided yet.

[A. Pole]

Well, either McDonald's or carbon nanotech research, I haven't decided yet.

Carbon nanotech research is being taken

[Tumbleweed_Connection]

Get serious. It's statistically insignificant.

Obviously you know how to keep track of details and relate them to your fundamental argument. Maybe you can help me.

First, when deductions are made for either private health or retirement, what is the taxable rate?

Second, why are the liberals so intent upon "adjusting" the tax rate on these deductions if they are "statistically insignificant"?

[johnb838]

Haven't the deficits been lower every year than the enormous projections? The never tell us exactly what the deficit WAS. They only tell us the outlandish projections.

[johnb838]

I read once that there is so much outsourcing that some of the Indian consulting firms are haveing to outsource their contracts to US consulting firms.

[LRoggy]

You can go to the either the Federal Reserve's website or the Treasury Department's web site to get the actual number.


As for the people who wonder what will come along, remember that twenty years ago we didn't have:

Mass use of the PC
Mass use of cell phones
Biotechnology
A Long Term Care industry beyond some nursing homes
High definition electronics
Companies like Toyota building manufacturing plants in the US


For the future, some promising industries:

Geriatric services (an interesting fact: two-thirds of all the people that have ever lived past the age of 65 are alive today) - as the population ages, the need to provide health care and quality of life, as well as financial planning for their needs will be huge.

Financial Services (yes, you might think you are cute in saying 'to the world', but that is happening - I am in this). As the world moves towards full implementation of capitalism, (and don't try to make the case that is not happening) it will require knowledge and skill sets we have developed, such as trade financing, merger services, etc.)

Leisure - as more people live longer, they will desire experiences as much as things. Part of manufacturing's decline is that as we grow our wealth as a society, there are only so many things we can buy, then we go on to experiences, such as visiting places in our country and the world, taking classes in interests we didn't have the time before for, etc.

Generational Wealth Transfer - as the WWII generation dies off, it is estimated that $10 Trillion of wealth will be inherited. That also fits into the financial services niche.

Housing Construction - putting aside the potential bubble of today, home ownership percentages continue to rise. Where I live, just south of the hurricane damaged areas of last year, we have a huge shortage of construction, particularly roofing and electrical. Craftsmen will be in big demand.

Notice I haven't even touched on technology yet.

I'm old enough to remember well all of the pessimism of the last 35 years - Paul Ehrlich, Jimmy Carter (our worst president ever in my opinion), Reagan deficits, trade deficits (30% of the trade deficit is solely American multinationals importing into America from division to division), Mexico and others defaulting on all debt to US banks, the death of manufacturing, the death of the family farm, etc. Sorry Chicken Little, the sky isn't falling.

One last note: The net worth of households in this country hit $48 Trillion in the first quarter, up another $1 Trillion since 12/04. Pessimists, to paraphrase Marx, throw off your chains, you have nothing to lose!