- by New Deal democrat
Yesterday I wrote about where we stand in the labor market cycle. I noted that I anticipate that nominal wage growth will accelerate at least some.
But that doesn't apply to real wages, as to which today we got some important and depressing information. Even though consumer inflation only rose a little over +0.1% in February, nominal wages for nonsupervisory workers only rose a little under +0.2%, so real wages remain -0.6% below their peak last July:
Measured YoY, real wages have actually declined for the second month in a row:
In short, wages haven't been helping out average American workers at all for over half a year.
That doesn't mean that those same workers will cut back on consumption, as we can see when we take the YoY graph back to 1983:
In the 1980s and early 1990s, even though real wages were relentlessly declining, households were able to spend more due to declining interest rates, and the entry of spouses into the labor force. More significantly, consumption also increased in the 2003-5 period because of the housing bubble, as many people tapped into the rising equity in their houses.
I had hoped this latter period would have been burned into everyone's psyche -- and the subject of strict regulation -- but apparently not, for as Bill McBride informs us, home equity withdrawals increased again in the first quarter of this year:
Declining interest rates are no longer supporting spending. That the "housing MAC" is being tapped again is dangerous.
