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U.S. Real Wages



March 18, 2011 – Comments (4)

This speaks directly to the ability of prices being able to "stick" in this environment (i.e. they won't) if wages do not keep pace. See:

-- Inflation V Deflation – Which Door Do You Pick? - List of both inflationary and deflationary pressures currently at work.

-- Inflation/Stagflation/'Flopflation' - Conditions under which prices are 'sticky' - Why I think calling what we have now 'stagflation' is misleading and will lead to the wrong conclusions. The US private sector is in a balance sheet recession. So the commodity price spikes (checklist's 'flopflation') will not stick because wages will not grow to accept them (hence commodity crashes after the spikes). ⇒ CPI is likely to be very low for the next 5-10 years. ⇒ Nominal Prices and real prices will be approximately the same for the next 5-10 years.


Chart of the Day: U.S. Real Wages
from Credit Writedowns by Edward Harrison

This chart was put together by David Rosenberg of Gluskin Sheff. It shows that wage growth in the U.S. is not keeping pace with inflation. For the statistical recovery to continue sustainably, we will need to either see this trend reversed. Alternatively we could see an increase in aggregate debt levels or a disproportionate increase in consumption from higher net-worth consumers as a bridge to longer-term growth. But without eventual real wage growth for the middle class, this is a bridge to nowhere.

4 Comments – Post Your Own

#1) On March 18, 2011 at 12:25 PM, OneLegged (< 20) wrote:

We don't need consumer spending to return to make a recovery stick.  We only need more QE and everything will be fine.

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#2) On March 18, 2011 at 12:27 PM, Melaschasm (< 20) wrote:

I may be missing something, but this chart appears to show that real wages are growing slowly over time. 

If you showed actual average real wages, rather than a percentage, you would see that current real wages are higher than those in 2008.

Remember that volatility does not equal a new trend.  A line can curve up and down representing volatility, but a trend needs to show higher highs or lower lows.  This graph is still showing higher highs and higher lows, meaning the real wage trend is upwards.


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#3) On March 18, 2011 at 12:41 PM, lquadland10 (< 20) wrote:

Real wages for who? This is why charts are soooooooooooo off. 1/3 of the country's of workers who work for min wage do not get a pay raise because hey with 9% unemployment just get rid of them and hire new ones. Take one person who makes 10 mil a year and gets a 3% pay raise then I looks like real wages are rising. OR if They don't get the pay raise then it looks like it is contracting. Everyone stayed at the same pay. It shows contraction so maybe the FED will do the QE3.

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#4) On March 18, 2011 at 3:41 PM, Melaschasm (< 20) wrote:

IMO:  The USA is going to experience growth with inflation.  However, the chances of stagflation have increased in recent weeks. 

The Fed has printed a large quantity of money, and inflation is primarily a monetary problem.  I do not expect hyperinflation, but 5% seems likely and 10% is possible for a short while.

For those who believe that the CPI understates USA inflation, feel free to double the percentages listed above.

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