Thursday, November 21, 2013

Lowest inflation in 50 years (ex-great recession) helps wages, jobs

  - by New Deal democrat

I've been saying for months that all you really need to know in order to estimate inflation is the prices of gasoline, and exactly as I predicted 3 weeks ago, the decline in gas prices to a near three year low caused October consumer prices to decline -0.1%, and YoY inflation to come in at +0.9%, the lowest inflation rate in 50 years outside of the Great Recession.  Here's the graph:

Photobucket Pictures, Images and Photos

As a result of the nearly non-existent inflation, real wages have continued to improve, and are now only 1.2% below their 2010 peak:

Photobucket Pictures, Images and Photos

October Retail sales also came in strong yesterday, at +0.4%.  This means that real retail sales increased +0.5%.

A long time ago, I pointed out that real retail sales are a particularly good leading indicator for jobs.  The YoY comparison in real retail sales had been declining, although still positive, coming into this year, but again, almost certainly due to the loosening of the Oil choke collar, the trend in YoY real retail sales has improved, as shown in the below graph in blue:

Photobucket Pictures, Images and Photos

Shown in red in the above graph is the YoY change in jobs.  First of all, as I said above, real retail sales are a good leading indicator for jobs.  Note that since 2011, as the trend in sales decreased, so did the trend in jobs, with a lag.  Now that the trend in sales is increasing, albeit slightly, the trend in jobs looks like it is turning up slightly as well.  October sales suggest that the YoY trend in jobs should continue to improve for the next few months.