A brisk rise in american wages...

Pay rose faster than the cost of living for the first time in years.
By Mark Trumbull | Staff writer of The Christian Science Monitor

American paychecks are rising again at a pace not seen since the 1990s.
The pay increase amounts to 4 percent on average over the past 12 months, and it comes at a very helpful time for millions of households.

For three years, pay increases haven't kept pace with the rising cost of living. Then came this year's housing slowdown, which has further squeezed family finances.

Those setbacks, however, are now being offset by rising income. Four percent may not sound like much, but you have to look back to 1997 to find a calendar year with a gain that big.

Equally significant, tamer energy prices mean that the "real" wage gains, after inflation, are above 3 percent for the past 12 months. That, too, hasn't happened since the 1990s, even though the economy has been expanding over the past five years.

"The striking feature of this expansion has been that ... real wages for the typical worker haven't risen that much," says Richard Berner, US economist at the investment bank Morgan Stanley in New York. But with real incomes rising, he says, "you get a picture of an economy that can weather this housing storm."

The risk of recession hasn't disappeared, he and other economists say. But with a fairly tight job market and low unemployment, many expect that paychecks will keep rising solidly in 2007.

Sandy Nelson has seen the strength of rising incomes first hand this year.

She runs Mulberry Road, a children's store near Boston's trendy Newbury Street, and says traffic has been increasing.

More customers means more income for her - and more money to keep investing in her young business.

"I have more of what people are looking for," she says, pointing to racks of colorful clothing for toddlers.

In other words, Ms. Nelson is ready for the vital holiday season.

"I'm just hopeful that it will be as good as what they're saying," she says, citing retail forecasts that New Englanders will spend more than $700 on gifts this season, on average.

The average private-sector paycheck is now $573 per week, according to Labor Department figures that cover about 8 in 10 workers - those in production or nonsupervisory jobs.

As recently as this past October, weekly pay adjusted for inflation was below where it was when President Bush took office in 2001. In effect, rising prices for things like healthcare, college tuition, and especially for energy ate up all the wage gains of an expanding economy, and then some.

The spike in energy costs was extreme, but the pattern was a common one. Wages generally rise fastest when the economy is strong and inflation is low.

That's why this moderation in fuel prices is so important.

Dan Thompson, who drives a DHL delivery truck in Boston, can hardly remember the pay raise he thinks he got earlier this year. But lower gasoline prices lately have been like an instant addition to his income.

"Thank God for that," Mr. Thompson says. He fills his tank often, since he drives to work every day from Salem, N.H.

Although the wage trend nationally has been steadily upward this year, it's unclear how much the inflation side of the equation will continue to benefit workers. Last week, the Labor Department reported not just tame inflation but an outright drop in consumer prices. The more typical pattern - and the one expected in the months ahead - is modest inflation, not deflation.

Even so, many analysts see a climate that's promising for more growth in real income.

"Expect wages to maintain a decent clip at least through the first half" of 2007, says Jared Bernstein of the Economic Policy Institute, a liberal-leaning research group in Washington.

Those gains lately have been fairly broad-based across all pay levels, but they come at a time when wage growth seems to be harder to come by than in the past.

One key reason, Mr. Bernstein says, is an increasingly global market for labor.

"If your work can be routinized and digitized, you're in global competition in a way that you weren't a decade ago," he says.

The key questions for the economy - and for worker pocketbooks - are whether the job and wage growth continues, whether the housing slump deepens, and what happens to energy prices.

"With oil prices down, we're less worried" about a recession, says David Wyss, economist at Standard & Poor's in New York.

Another positive sign: Companies are laying off fewer people this year, says John Challenger, who heads the outplacement firm Challenger, Gray & Christmas in Chicago.

A brisk rise in American wages | csmonitor.com



This is really good news. There's been a couple quarters now that wages have risen beyond inflation by a fairly significant clip. The other bit of good news not mentioned in this article is wholesale prices are dropping fairly quick. We need a good solid drop in wholesale prices for 1 or 2 quarters which should translate into increased profits and/or another increase in real wages. However, it is important to note that 3 or 4 quarters of continued drop at a wholesale level could cause some kinks in the economy assuming they're fairly steep drops. I'm hoping for two quarters of sharp drops in wholesale pricing with it leveling off sometime early next year. This should drop or hold retail prices steady and increase the margins in a huge variety of businesses spurring the market and wages upward.

The most interesting thing in this article is that unemployment continues to drop and many economist think that the rising wages may partially counteract the downturn in housing that we're experiencing. My concern is this housing downturn could easily last a year or even two years before nationwide averages settle down. Home prices are very high in many areas and while dropping in places like SF, Phoenix, LA and others they remain way to high given current market conditions.

Cliffs: Wages are rising the economy continues to humm along at a pretty good clip and the housing downturn may put a few bumps in the road but it isn't likely to derail our good economy.

[Phantom]

I hope my employer takes this into consideration next month

Originally Posted by Phantom

I hope my employer takes this into consideration next month

Our annual raises dont come along till march

[TheScatman]

I have heard Larry Kudlow complain about these wage stats bein goff, that is they would take into account people who bought and sold things on ebay for a living, etc. Not a measure fit for a dynamic economy like ours?

Originally Posted by TheScatman

I have heard Larry Kudlow complain about these wage stats bein goff, that is they would take into account people who bought and sold things on ebay for a living, etc. Not a measure fit for a dynamic economy like ours?

So what do we do completely 100% ignore all economic statistics because they point to a good economy?

There's always a possiblity that stats are flawed, these stats take into account wages paid to workers not money made on ebay.

[SICKGUY]

Originally Posted by Phantom

I hope my employer takes this into consideration next month

mine too.

[Thorgrim]

For three years, pay increases haven't kept pace with the rising cost of living. Then came this year's housing slowdown, which has further squeezed family finances.

OMG, what i've been saying about the Bush economy since I came on LL has been *gulp* right!

[RMNIXON]

This is the free market at work! It is that simple. Adam Smith's Hidden Hand that Milton Friedman defended so well!

When Unemployment contracts you need to offer more money to attract better and more educated people and keep the good people you have because the opportunities for other better paying jobs is at its best. When you have the reverse, high unemployment you are more likely to stay at a poor paying job or take one with less compensation.

[RMNIXON]

Originally Posted by Thorgrim

OMG, what i've been saying about the Bush economy since I came on LL has been *gulp* right!

Actually the housing slowdown will bring down home prices for "working families." Not good news for the economy, but good for first time home buyers!

[Thorgrim]

Originally Posted by RMNIXON

This is the free market at work! It is that simple. Adam Smith's Hidden Hand that Milton Friedman defended so well!

When Unemployment contracts you need to offer more money to attract better and more educated people and keep the good people you have because the opportunities for other better paying jobs is at its best. When you have the reverse, high unemployment you are more likely to stay at a poor paying job or take one with less compensation.

Who said Adam Smith?

The subjects of every state ought to contribute toward the support of the government, as nearly as possible, in proportion to their respective abilities; that is, in proportion to the revenue which they respectively enjoy under the protection of the state...a goal of taxation should be to 'remedy inequality of riches as much as possible, by relieving the poor and burdening the rich.'

Such regulations [banking regulations] may, no doubt, be considered as in some respect a violation of natural liberty. But those exertions of the natural liberty of a few individuals, which might endanger the security of the whole society, are, and ought to be, restrained by the laws of all governments; of the most free, as well as of the most despotical. The obligation of building party walls, in order to prevent the communcation of fire, is a violation of natural liberty, exactly of the same kind with the regulations of the banking trade which are here proposed.
Adam Smith, "The Wealth Of Nations", pg. 263

Whenever the legislature attempts to regulate the differences between masters and their workmen, its counsellors are always the masters. When the regulation, therefore, is in favour of the workmen, it is always just and equitable; but it is sometimes otherwise when in favour of the masters.
Adam Smith, "The Wealth Of Nations", pg. 151

The capricious ambition of kings and ministers has not, during the present and the preceding century, been more fatal to the repose of Europe, than the impertinent jealousy of merchants and manufacturers. The violence and injustice of the rulers of mankind is an ancient evil, for which, I am afraid, the nature of human affairs can scarce admit of a remedy. But the mean rapacity, the monopolizing spirit of merchants and manufacturers, who neither are, nor ought to be, the rulers of mankind, though it cannot perhaps be corrected, may very easily be prevented from disturbing the tranquillity of any body but themselves.
Adam Smith, "The Wealth Of Nations", pg. 382

[RMNIXON]

No response to what I actually posted? One would think that a mere reference to someone means I believe any and all of their writings or modern day misinterpretations of same? Especially when they refer to merchants, ministers, and kings of centuries past!

[Thorgrim]

Originally Posted by RMNIXON

No response to what I actually posted? One would think that a mere reference to someone means I believe any and all of their writings or modern day misinterpretations of same? Especially when they refer to merchants, ministers, and kings of centuries past!

So he was living in another time so removed from today that now his words are irrelevant?

Originally Posted by Thorgrim

So he was living in another time so removed from today that now his words are irrelevant?

Can you explain how its relevant to the topic at hand?

[TheScatman]

Originally Posted by 6SpeedTA95

So what do we do completely 100% ignore all economic statistics because they point to a good economy?

There's always a possiblity that stats are flawed, these stats take into account wages paid to workers not money made on ebay.

wasnt saying to ignore them, just wondering if anyone else has heard the same

Originally Posted by TheScatman

wasnt saying to ignore them, just wondering if anyone else has heard the same

Yeah sometimes the studies can be screwed up. But its that way with everything. When its talking about an employment wage or pay then its typically more reliable than simply an "income" study which usually looks at tax returns as the primary source of data

[kinggovernor]

we have both clinton and bush's free market leanings to thank for this

Originally Posted by kinggovernor

we have both clinton and bush's free market leanings to thank for this

I agree, Clinton wasn't a huge liberal economically, in many respects he was conservative with his hands off approach.

[kinggovernor]

Originally Posted by 6SpeedTA95

I agree, Clinton wasn't a huge liberal economically, in many respects he was conservative with his hands off approach.

signing NAFTA will be his true legacy

Originally Posted by kinggovernor

signing NAFTA will be his true legacy

Fantastic legislation IMO.

[kinggovernor]

Originally Posted by 6SpeedTA95

Fantastic legislation IMO.

the benefits to this country and the rest of the world has been great. Free trade is the best thing that has ever happened to this country and poor people around the world