Real Earnings Fall

Andrew Samwick:

Tough News from the Labor Market, by Andrew Samwick: This morning brought two pieces of news from the BLS.  First, real earnings declined last month:

Real average weekly earnings fell by 0.8 percent from June to July after seasonal adjustment... A 0.3 percent increase in average hourly earnings was more than offset by a 0.3 percent decrease in average weekly hours and a 0.9 percent increase in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W).

Second, initial claims for unemployment insurance continue to be high:

In the week ending Aug. 9, the advance figure for seasonally adjusted initial claims was 450,000, a decrease of 10,000 from the previous week's revised figure of 460,000. The 4-week moving average was 440,500, an increase of 19,500 from the previous week's revised average of 421,000.

Here is a graph of that 4-week moving average over the last 30 years... Comparing the current episode to the last 20 years, which includes the recessions in the early 1990s and early 2000s, the level of claims was higher during those downturns than it is currently.  But the level never got as high as it is now without going even higher.

I chose Andrew's summary because he led with the news on real wages:

Priorities, by Kevin Drum: Here's the first graf of today's LA Times story on the economy:

Consumer prices took another sharp jump last month with high energy prices fueling a 0.8% monthly increase — nearly double analysts' predictions — and chalked up a 12-month inflation rate of 5.6%, the highest since 1991, the Labor Department reported today.

ZOMG! Inflation is out of control! Now, here's the seventh (i.e., nearly last) graf of the story:

Joel Naroff of Naroff Economic Advisors said that other economic indicators released today were equally worrisome. The Labor Department also reported that workers' average weekly earnings declined by 0.8% in July and 3.1% over the last year, even after adjusted for inflation.

Yawn. People are making less money than before. Whatevs.

Question for the folks who populate our newsrooms: Why is it that a 0.8% rise in inflation, the biggest since 1991, is huge, headline news, while a 0.8% decline in wages, the biggest since 1990, is only barely worth mentioning? In a newsroom with some connection to the normal world, wouldn't it be the other way around?

But I guess I should be grateful. The Wall Street Journal put the earnings news in the 15th paragraph of their story, the Washington Post relegated it to literally the very last paragraph of theirs, and the New York Times didn't bother to mention it at all. So on second thought, good job, LA Times. Yippee.

Update: Paul Krugman:

...A nasty inflation number today. But remember what the guide says: DON’T PANIC.

Basically, what we’re seeing is pure commodity price inflation, with not a hint of a wage-price spiral. And the commodity boom seems to be over. So inflation will be headed down soon.

I’m sure that Gentle Uncle Ben is under immense pressure to raise rates. But he shouldn’t.

Comments

[Groundhogday]

Declining earnings will add to home price declines. Can't buy what you can't afford (at least not any more with Alt-A loans all but extinct).

Can we really experience sustained inflation if wages are falling?

[Callahan]

Real earnings fall, that's news? Higher inflation making it difficult to "make ends meet". That's news?

What in the hell are "real earnings"? Opposite of fake earnings?

Peace and Prosperity. Man we could use some of that for a while. Hear that George?

[It's up to you]

Yes, a fall in real wages is news - bigger news than the change in inflation (which, in and of itself, does nothing, it's the effect on things like wages we care about). But even inflation is news - if you'd do a little reading and see that it leaked into core inflation, you'd understand why.

If you don't know what real wages are, and why you should care about them, that's a big part of the problem. Ignorance is not bliss (Google? Wikipedia?). If the media focuses on the wrong thing, and continues to do so becasue nobody bothers to figure out simple concepts like "real wages", then so will policymakers -- and labor will lose yet again. If people can't be bothered to even understand why something is news, why should the media even care?

[Redistribution]

Isn't that exactly what they wanted? Higher wages now may have led to a wage/price spiral. For banks to be recapitalized via money creation driven inflation, someone must be willing to lose the purchasing power that is being transferred to banks.

[kharris]

Even if you think that inflation is, in itself, the important thing, it pays to think through why and how much. How much inflation is one thing to know. How much wage gain is another thing to know. Real weekly earnings is a way to rub the two together.

Usually, when smart people have been looking into an issue for a long time, they will develop efficient tools. Real earnings is an efficient tool for understanding the combined impact of two different things on household purchasing power. Seems like an OK thing to know about.

[dissent]

This is a mean country. We bully and invade other countries easily because we are so hostile towards our own people.

At least Russia had a pretext.

[ddt]

Krugman is right. He still can't bring himself to write the word "bubble", but at least he is acknowledging that the commodities "boom" is over.

[Julio]

Krugman:
...A nasty inflation number today. But remember what the guide says: DON’T PANIC.

Basically, what we’re seeing is pure commodity price inflation, with not a hint of a wage-price spiral. And the commodity boom seems to be over. So inflation will be headed down soon.

Leaving behind a permanent, forever, cut in purchasing power. To be made up by vigorous union action. Oh, wait...

But hey, I'm not panicked. I can always make more money somehow, right?

[Francois]

"Question for the folks who populate our newsrooms: Why is it that a 0.8% rise in inflation, the biggest since 1991, is huge, headline news, while a 0.8% decline in wages, the biggest since 1990, is only barely worth mentioning?"

Ask the newsrooms' editors: they're the ones controlling the flow and position of information.

That done, ask yourself who the editor's boss, and what does the boss wants?

One thing is sure: he does not want to be responsible for catalyzing the mob's anger to the point of forcing a more equitable distribution of the returns on investment within the society at large.

Could hurt HIS personal bottom line. That would suck big time, wouldn't it?

[kthomas]

que bon, Francois. Vive!

[halbhh]

The move in the dollar on the whole this year has been like a step function adjustment in Americans' buying power -- all of us Americans are less wealthy than we seemed to be a year ago. This can be seen as an adjustment back towards a more realistic level of wealth (relative of course) vs other nations, etc. But for Americans individually a real adjustment has/is taking place -- we are not as rich as we believed.

[Rex]

This might be the most telling stat:
"The purchasing power of the typical worker has now fallen back to 1998 levels, despite a 29% increase in productivity over that period."

[ken melvin]

After initiating discussion w/ AP and SFChron reporters in re some of their post of such matters. I agree that they don't seem to have much background or understanding, but given that many economists insist that the cure for inflation is to pressure labor, who can blame journalists for their confusion? Still missing, I believe, is the acknowledgment that most inflation is due a perception that they can get by with raising prices and if they can get by with it they will continue to raise prices, Could be, if the gets to loud, they might agree to sharing some of the spoils with labor.

[Noni Mausa]

Andrew Samwick said: Comparing the current episode to the last 20 years, which includes the recessions in the early 1990s and early 2000s, the level of [initial unemployment] claims was higher during those downturns than it is currently. But the level never got as high as it is now without going even higher...

Does this chart take into account changes over the decades in who qualifies for initial unemployment claims? or the percentage of the working population who have jobs that don't qualify them for unemployment coverage? I cannot imagine that 1982, as bad as the interest rates were, could have been worse for unemployment than today.

Noni

[Inflation is the Enemy]

"Leaving behind a permanent, forever, cut in purchasing power."

That's the problem with current policy. If prices rise too fast one year (due to commodities et al), the CPI is never ever allowed to fall to restore the average inflation to its long term trend line. When commodity prices do fall, it will be seen as a reason to create enough new money to increase the price of everything else to compensate. The net result is that high inflation periods do leave behind permanent, forever cuts in purchasing power. Especially for the hapless retirees depending on meager pensions and savings.

Inflation is the enemy.

[me]

Georgia’s jobless rate highest in 15 years
The Atlanta Journal-Constitution

Thursday, August 14, 2008

Georgia’s jobless rate climbed last month to 6.2 percent — its highest level in more than 15 years, according to the state Department of Labor.

The jump, from 5.6 percent in June and from 4.4 percent in July of last year, puts the state above the national rate of 5.7 percent.

Unfortunately, the news will probably get worse before getting better, said Don Sabbarese, director of the Econometric Center at Kennesaw State University.

[hari]

Paul is wrong on his Uncle Ben - rates will go up before year end. Watch it....

[Real Person from the Real World]

I recently got a raise to my Wal-mart level wages. What good does it do me? Gas is up, and the items I buy are up. I was barely making ends meet, and I am still barely making ends meet. So, was it just inflation? What about all the people who actually LOST jobs?