Real Wages Still DECLINING

Though nominal wages have increased 3.5% over the last year, when adjusted for inflation they have DECLINED 0.6%. January's real (inflation-adjusted) hourly wage was $8.18/hour (in 1982 dollars). This is a -0.6% change since January 2005's $8.23/hour. Worse still, this is a DECLINE of 1.1% since January 2004's $8.27/hour. This information can be found at the United States Bureau of Labor Statistics at http://data.bls.gov/PDQ/servlet/SurveyOutputServlet?data_tool=latest_numbers&series_id=CES0500000049.

Despite Bush Administration spin, American workers are losing ground. They're ability to purchase production through wages is steadily declining. Since consumer spending is 2/3 of all economic activity, this erosion in purchasing power spells trouble for our economy.

Over the last 2 years, consumer spending increases have been sustained through increased borrowing alone. Home equity extraction for 2005 was $243 billion, according to Bloomberg News http://www.bloomberg.com/apps/news?pid=email_us&refer=home&sid=aE50ss.wrOM0

Home equity extraction would account for 63.3% of our economic growth in 2005. As such, home equity extraction could account for nearly all of the 66.7% (2/3) fraction attributable to consumer spending. of the consumer spending increase in Thus it is increased home equity extraction, not wages, that have maintained consumer spending, consumer demand, and GDP growth.

Consumer spending increases are necessary for continued economic growth. According to Bloomberg News, home equity extraction is expected to DECLINE $126 billion from $243 billion down to $117 billion in 2006. This would be a 52% decline, and a 52% decline in consumer spending power. This source of spending is nearly equal to all of our spending growth. With a 52% reduction in consumer spending power, spending would also decline 52%. If 2006 consumer spending remains 2/3 of of economic activity (and GDP), it would reduce our GDP growth by the same 52%. A 52% reduction in this year's 3.2% GDP growth would leave a 2006 GDP growth of only 1.54%.

Considering 2 straight years of declining real wages, there is no reason to think real wages will rise in 2006. As such, wages won't make up for the spending loss from decreased home equity extraction. Less consumer spending will result in less consumer production demand, less demand for workers to provide that production, and declining wages and employment as a result.

It definitely looks like we're in for a year of significantly slower economic "growth." How much slower remains to be seen. With a December Durable Goods Order decline of 10%, the biggest decline in 5 years, the economy is not looking good.


unlawflcombatnt

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Economic Patriots' Forum

___________
The economy needs balance between the "means of production" & "means of consumption."

..idiots as cause for the whole miserable situation.
Americans can't put 2 and 2 together and figure out that the
Repugs are only for the chosen rich...

If it wasn't for the "Kerry-Voters" in this Land, I'd tell them
that this is what they voted for and this is what they'll get..

I don't think I'm in error when I state that:
If Americans had put Democrats in the Congress with Kerry as the President,
the future would look a Hell-of-a-lot brighter than it does now.

Everyone from my generation (the Xs and the Ys) needs to realize that they are being screwed, that their futures are being mortgaged, and that the leadership in Washington doesn't seem keen to do anything about it.

As the article notes, the equity harvesting is falling off, as it has to. Since it is the engine of most consumer spending, that engine is set to go into a stall.

Good thread.

Neil,

Thanks for your compliment and your response. I hadn't put this all together until today, regarding the % of consumer spending that could possibly be attributed to home equity borrowing. If all home equity borrowing actually went into consumer spending, it would account for almost all of the increase in consumer spending over the last year. I'm sure some went into investment, but no doubt the bulk of it went into consumer spending.

American workers simply aren't making enough in wages to maintain economic growth. If wages don't rise soon, economic growth will grind to a halt.

unlawflcombatnt

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Economic Patriots' Forum

___________
The economy needs balance between the "means of production" & "means of consumption."

it's growth in india and china and viet nam they're concerned with.

We roll the short term into a new long term equity loan, then we get new short term debt.

The Bush Administration's touted "economic growth" is just another excuse for obscene corporate profits made without regard for worker wages. In a healthy economy, as ours was once, the upper class shares at least enough of its wealth (profit) with workers to allow them to purchase products and services which keep the economy moving.

As Unlawful has often said, we seem to be in more of a pillaging stage in which the rich are stripping every last bit of value from our country, getting their own before there's nothing left! Part of this process includes outsourcing jobs, and insourcing low wage labor in the form of both illegals and HB1 Visa holders to fill "jobs Americans won't take" and jobs for which Americans aren't educated. Of course, these are lies to cover the real truth that in both cases these are jobs for which the rich want to pay workers too small of a wage so they can keep too great a share of the profit.

And don't believe that bull about lower taxes and higher profit margins spurring the economy through increased investment. Large corporations are showing unprecedented levels of cash on their books. They simply are not reinvesting their profits because they realize the perilous state of our economy and do not see investment opportunities. Again as Unlawful often mentions, even Warren Buffet says there is a lack of good investment opportunity available. They want us to believe lower taxes spur job growth because that will improve support for lower taxes among average income people who are actually hurt by these low rates. When the Bushies point to increased revenue and claim it is due to their tax strategy, that is due to the one time windfall they got by allowing multi-nationals to bring home their overseas profits at a VERY low tax rate!

The bottom line is that this administration will tell any lie it can think of to cover the truth that its policies protect corporate profits at the expense of harming their own average citizens. This post on still declining real wages is just one more proof of the long term pattern.

PsycheC,

Excellent post. I completely agree with you about the record levels of Corporate cash on hand. That money can't be invested profitably unless consumer demand is sufficient.

unlawflcombatnt

EconomicPopulistCommentary

Economic Patriots' Forum

___________
The economy needs balance between the "means of production" & "means of consumption."

Please review what happens in a top heavy economy. Overconcentration of wealth results in the economic empire of the US to collapse, just like Kevin Phillips shows in Wealth and Democracy. Spain, the Netherlands, Great Britain, and now us.

You can have great wealth or a democracy, but you cannot have both--Louis Brandeis

and a related link

http://www.democraticunderground.com/discuss/duboard.php?az=view_all&address=364x629945

Here's a graphic representation of after tax income changes since 1979-2002. It's definitely a case of the very rich doing much better than everyone else.



Below is a graph of the changes from 2002-2003.



Again, as this disparity worsens, so does the ability of consumers buy enough goods to create the necessary demand for economic growth. In addition, this stagnant consumer income produces little in the way of new investment opportunities, as the spending power necessary to create those opportunities is declining.

unlawflcombatnt

EconomicPopulistCommentary

Economic Patriots' Forum

___________
The economy needs balance between the "means of production" & "means of consumption."

I nearly died laughing when this article was published
so I had to DU it

http://www.democraticunderground.com/discuss/duboard.php?az=show_mesg&forum=364&topic_id=625116&mesg_id=629918

I hope you enjoy it as much as I did. Thank you for the graphics btw. Freepers heads are exploding !

You're welcome for the graphics. Feel free to repost them elsewhere as well.

unlawflcombatnt

EconomicPopulistCommentary

Economic Patriots' Forum

___________
The economy needs balance between the "means of production" & "means of consumption."

inflation.

Right now it takes 4.1% to be paid the same as last year or else you're taking a pay cut. If offered less, give your notice.

Some places have an annual salary review, where they have a range of possible salary changes. The last HMO I worked for said you could get anywhere from a 5% raise to a 2% cut.

I suspect a lot of other places negotiate annual salary increases that are not keeping pace with inflation. A lot of employees simply aren't aware of what the annual inflation rate is for any particular year. So they're happy with a 2% pay increase, despite a 4% increase in the consumer price index.

And all of the firing and rehiring allows employers to replace old employees with newer, lower paid employees. This is one of the reasons the economic concept of "sticky wages" has less application today. There's so much job turnover that it's easy to replace a recently laid off or terminated employees with one who'll accept less.

unlawflcombatnt

EconomicPopulistCommentary

Economic Patriots' Forum

___________
The economy needs balance between the "means of production" & "means of consumption."

As a country, we're making less after inflation each year.

graph and the national deficit graph DOWN PEOPLES THROATS until americans WAKE UP!!!!

This is the type of stuff, you know, FACTS!!! that the american people could understand IF ONLY THEY WOULD BE TOLD ABOUT IT!!!

However, its so hard to fit this message in between having to discuss things that affect everyday hardworking americans more such as gays, ten commandment courtroom posters, gays, car chases, gays, the latest blond girl gone missing, and what * failure the MSM can blame Clinton on this week.

You're right on target. With all the television and radio stations you'd think they could find time to mention something about this. The only place you ever hear any such facts are on Lou Dobbs, or on C-SPAN when the "30-Something" Congressional Democrats speak (generally to an empty House chamber.)

In all fairness, you occasionally hear something like this on National Public Radio, or Air America (when they're not busy airing something much more important, like a Clippers' basketball game.)


unlawflcombatnt

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Economic Patriots' Forum

___________
The economy needs balance between the "means of production" & "means of consumption."

:kick:

Would be interested to see how large that 63.3% is compare to the past couple of decades.

I think I've seen something on this. I'll try to find some more information.

unlawflcombatnt

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Economic Patriots' Forum

___________
The economy needs balance between the "means of production" & "means of consumption."[/