As the economy slows, wage growth can't keep up with inflation, which means less spending power for already troubled consumers. According to the Bureau...
As the economy slows, wage growth can’t keep up with inflation, which means less spending power for already troubled consumers.
According to the Bureau of Labor Statistics, inflation-adjusted weekly wages in the past four months fell for about 80 percent of workers in nonmanagerial production and services jobs.
From November through January, consumer prices — excluding food and energy — rose at an annual rate of 3.1 percent, according to the Labor Department. That’s higher than the Federal Reserve’s unofficial comfort zone of 1 to 2 percent.
Costs for medical care, education, clothing, tobacco and airline fares are climbing, while oil, wheat, soybeans and corn futures have been trading near all-time highs.
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A Tuesday report showed wholesale inflation for goods bought by producers jumped 1 percent in January, more than double the increase economists had expected.
The rise in prices is “a sustained hit on consumers’ real incomes and, hence, on their ability to spend on other goods and services,” writes Ian Shepherdson, chief U.S. economist for research firm High Frequency Economics.
For the Fed, concerns about the sluggish health of the economy have overtaken worries about soaring prices.
The central bank cut interest rates five times in the past five months. Lower interest rates typically contribute to inflation, and the Fed recently raised its inflation expectations for the year.
Economists anticipate another rate cut at the March 18 meeting.
Consumer spending, which is closely linked to job security and expectations of healthy wage growth, is the single most important contributor to U.S. gross domestic product, and constitutes more than two-thirds of the nation’s output, notes National Retail Federation chief economist Rosalind Wells.
“Average workers have been faced with erosion in their spending power,” she notes, which is bad for the broader economy and for already struggling retailers.
A Tuesday reading of the Conference Board’s Consumer Confidence Index dropped to 75 for February, far below a projected 83.
Bear Stearns economist John Ryding notes the survey indicated a sharp drop in consumers’ view of the labor market.
“The decline in consumer confidence, including the drop in consumers’ assessment of the labor market, has a recession-like feel to it,” he writes.