Lagging U.S. Wage Growth a Worry for Economy
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Tue Jul 6, 2004 01:15 PM ET
By Victoria Thieberger

NEW YORK (Reuters) - While American companies are enjoying their best profits in decades, workers have seen scant gains in wages and if that doesn't change soon, economists worry consumer spending could falter, hurting the economy.

Workers have played a vital role in reviving the economy by spending through thick and thin during the recent downturn. But they have yet to reap the benefits of the recovery.

The latest employment report released on Friday showed U.S. wage growth slowed sharply in June after a recent pick-up, and analysts say the benefits of solid economic growth have flowed more to corporate profits than to workers.

"I'm very surprised that reasonable people are worrying about the rise in wages and unit labor costs," said Jim Glassman, senior economist at J.P. Morgan.

"To me, the news that we're watching tells us that labor is not getting its fair share yet," he said.

Indeed, wage increases are falling far short of inflation, suggesting workers may have trouble keeping up with the economic recovery.

They have yet to benefit from the surge in productivity as they crank out more goods and services. Instead, all that increased productivity is boosting corporate profits, which hit a record in the first quarter.

Economists worry that the recent softening in retail sales could be partly due to the failure of wages to catch up with economic growth. They say household spending could slow further should wage growth fail to improve.

REAL WAGES FALLING
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The June employment report showed the smallest increase in average hourly earnings this year, only 0.1 percent.

That helped counter fears that rising compensation might fuel inflation and thus prompt the Federal Reserve to raise interest rates aggressively.  

"This suggests that there is no wage-push inflation in the pipeline, which is good news," said Lehman Brothers financial markets economist Drew Matus.
"But it also implies that consumers' incomes may not recover as fast as previously thought, which is bad news," he added.

Over the year to June, hourly earnings rose only 2.0 percent -- well below the 3.1 percent inflation rate recorded in May, the most recent data available.

Research by the independent Economic Policy Institute in Washington shows that, after adjusting for inflation, real wages have fallen in six of the last seven months. The average hourly wage of $15.63 in May was the lowest in inflation-adjusted terms since May 2002.

"This squeeze in real wages may explain the recent softness in consumption," said Ian Morris, HSBC chief economist. Chain store sales have been slow in recent weeks, and big retailers have trimmed their forecasts for June. Even hitherto robust auto sales slumped last month.

Of the several measures of labor costs that economists focus on, another recently turned positive.

Unit labor costs, which are released only quarterly, rose 0.8 percent in the first quarter from the previous quarter, after declining in 2002 and 2003.

That sparked talk on Wall Street that wage growth would boost inflation and require more aggressive interest rate hikes from the Federal Reserve. But the Fed last week reiterated its "measured" approach.

Compared with a year earlier, the first quarter's unit labor costs were still down 0.8 percent.

"The fact labor costs are starting to swing (on a quarterly basis) in the direction of normalizing is not an inflation threat," Glassman said.

Wages have been soft through the recovery because the job market, equally, has been weak. The unemployment rate, at 5.6 percent in June, is stuck where it was in November 2001, and the Boston Federal Reserve estimates the economy is about 5 million jobs short of full employment.

Meanwhile, corporate profit data, released by the Bureau of Economic Analysis, showed profits were at a record $1.2 trillion in the first quarter. After taxes, profits soared 37.7 percent from a year earlier, the biggest jump since 1984.

Glassman said the clearest indicator that labor has yet to share in the recovery is that corporate profit margins are at a record. "That tells you everything you need to know."

Related Story:
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Services Growth Slows, Job Picture Hazy
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Tue Jul 6, 2004 01:03 PM ET
By Pedro Nicolaci da Costa
http://www.reuters.com/newsArticle.jhtml?type=businessNews&storyID=5599351

The economy is recovering (growing)at a record pace and the unemployment rate is going down as more people get employed.  When people leave a current job for a new job or take a promotion within the same company, the pay increase tends to be very significant.  Workers who stay in the same job get pay raises until the ceiling is reached for that specific job. Generally, that takes years.
A significant number of entery level people that make minimum wage receive a raise after 3 months on the job and nearly all have received a raise after 6 months. Most mimimum wage people are young adults(16 to 25).

A successful economy would reflect an overall positive net job growth, not negative, and would be creating new jobs, not simply replacing jobs that were lost since Dumbya stole office in 2000.  Shrub's bragging of his 1 million plus "new" jobs created neglects the fact that those are only replacing part of the 2 million plus jobs LOST (including mine) since the weed infiltrated the White House.

Answer this:  How come Shrub used the term "fuzzy math" in describing the Democrat's economic accounting during the 2000 election, but it isn't "fuzzy" now with negative job growth a FACT on his resume?  Did I forget to mention RECESSION?  How about the budget surpluses he inherited from President Clinton (which are now record DEFICITS)?  They went for tax cuts for the wealthy, along with financing the now questionable war with Iraq, while raiding other government stockpiles in the process.  Sounds like "fukky" math to me.

Dumbya seems to be really proud of his "recovery".  His "recovery" reminds me of the scenario when a new coach takes over a team, it performs worse than before he took it over, then the coach says the team is making progress.  (Sounds like the KC Royals.)  When the "recovery" refers to the correction of negative economic factors (job loss, recession, record deficits) which all took place entirely under his command, Shrub should really keep his stupid mouth shut.

-- Modified on 7/7/2004 4:48:17 PM

-- Modified on 7/9/2004 7:00:44 AM

You need to check your facts.  The economy is growing but the unemployement rate is not going down; it's been essentially unchanged despite the recent postive employment numbers.  Companies are still laying people off and as these articles highlight the increased productivity has done nothing for job growth. It has only served to allow companies to produce more with fewer people and boost corporate profits.

You ARE a geezer!  You obviuosly have gotten so old you have confused this economy with a few years ago.  This snazzy new Internet thing is catching on- changing the way everybody is going to do business from now on.  e-Bay OUGHT to be worth more than GM!

In the real world, the recovery is OK, but skittish.  Not a good time for a WAR-oops.

I just love the GOP Bravado.  Back when I was a kid, if you drove a car into a ditch, you got out and were apologetic. Maybe handed the keys to someone else.

I guess now you go into hock to get a bigger better car and look for wall to plant it in!  The Republican way- !

Reon't give me that crap. I've been unemployed for 2 years.

It would be good if jobs numbers could be put into a numerical compilation which gives the dollar impact of jobs lost versus those gained during the period which the jobs data cover.  This would allow the debate over whether the economy is growing or actually contracting to be based upon numbers.  To give an example of how such a calculation would work, if 10 jobs were gained where the average salary was $50,000 per year and 10 jobs were lost where the average salary was $48,000 per year, the net gain in gross pay for the period would be $20,000.  Such a calculation, if it could be made, would give form to the jobs numbers.

-- Modified on 7/7/2004 4:52:58 PM

5 review in the last 2 years !

For the last couple months the unemployment rate has not moved from 5.6% but this very month it will get better and come August, Sept and the rest of the year it's really going to get better.  Unemployment is one of the trailing indicators.  I know you'll get a job but I hope you'll get a job that you'll enjoy.

to its existence - But he's sure Iraq had WMD's.

I am unmarried, totally single with no other means of support.  I got unemployment for a few months, but wasn't eligible to get the extended benefits Shrub signed into law because I had been on unemployment too long.  No retroactive benefits for me.

Since then, I've liquidated all my accumulated savings (which wasn't much), cashed in my IRA (again not much, especially after the markets started falling 3-4 years ago, and which I'm going to pay for in taxes and penalties next year), and have pretty much maxed myself out on my credit cards in order to stay afloat.  I'm looking to file bankruptcy in a couple of months.

A "proud" example of the Shrub economy.

When I get this "job", unfortunately, it won't pay me; If I want the "job", I'll have to pay for it.  

You are right Nichole.

It took 2 years of Bush to cripple my business. Even though they say the economy tanked during Clinton's presidency. I suppose it will take another 2 years of them saying the economy is doing great before the entire USA believes them. Hopefully my business may not be gone by then.

I have been struggling even more since the economy had the upturn? Have not been able to partake in the pleasure of my hobby at all since Feb. and I was a 2 to 3 times a month type of guy, since the end of 2002 it has dropped every month.

Someone (believable) please tell my clients that the economy is doing well so I can hire some of my displaced workers back.

Where's your responsibility, given your conservative beliefs, to conform to the law to a "T"?  How many local laws have you been busting with impunity for your "hobby."  How do you justify this?

/Zin

I daily break the speed limit too!  Don't tell anyone.

Seriously, I was raised with the concept that with decent, there very well may be a cost.  The possiblity of paying that cost has a lot to do with the intrigue of participating in the hobby for me.  Ashcroft's job is enforcing the federal law and I think he has done a good job of it.

Other than Ashcroft being a Christian and a conservative, just what is your beef with him?  Your guy Kerry voted for the Patriot Act, Ashcroft didn't!  I contend that you guys hate him because he is a man of faith and a conservative, prove me wrong with some facts!

I have never said anything about conforming "to a T", that is your strawman, I won't embrace it.

Now here is one for you, since you hobby as well, this must mean that you have a disdain for all laws!  So Zin, how long have you been beating your wife, robbing banks and stealing cars?

You should probably take a few Econ classes.  Alan Greenspan has more control than Bush, and his only tool is interest rates!  Frankly, I think the economy is a juggernaut that keeps on rolling in cycles, and its course can only be slightly changed by policy.