Regular readers are aware that one of our favorite data series when it comes to demonstrating the quality aspect of the American “recovery” (the quantity is sufficiently taken care of with part-time workers filling in positions without benefits and job security in the New Normal) is that showing the annual average hourly earnings growth in nominal terms, which in November posted the tiniest bounce from its all time low print of 1.2%, rising to 1.3%.
The problem as noted above, is that this is nominal wage growth. It therefore excludes the impact of inflation which according to the CPI, rose by 2.2% in October, or, in other words, wage growth was negative in real terms. But it wasn’t negative only in October and November. When one takes the Y/Y change in average hourly earnings and subtracts the Y/Y change in CPI one gets a very troubling picture: wages have risen below the rate of inflation for 22 consecutive months, with real wages printing their last positive number back in January 2011 and negative ever since!
So how does one explain this disturbing news that nobody reports on for fear it would upend all narrative of a recovery, as one can not have a recovery if real wages have been declining for nearly two years in a row? Bloomberg’s Rich Yamarone takes our big picture jobs Quality-vs-Quantity theme, and granularizes it, showing that since the “end” of the Great Recession, the most jobs gained, are those who have had the lowest change in average hourly earnings:
Another critical component of this low-wage hiring trend is the eroding rate of wage growth. During November the pace of average hourly earnings for all private workers increased just 0.2 percent from October, and remained a mere 1.7 percent higher than a year ago. This is not keeping up with the pace of underlying inflation, which was 2.2 percent during October (as measured by the consumer price index.) The year-over-year increase in average hourly earnings for production and nonsupervisory workers was 1.3 percent in November, a negligible difference from the 1.1 percent rate in October, which was the lowest since recordkeeping began in 1964.
Wage growth is simply not keeping pace with the underlying rate of inflation. Wage growth in two of the largest industries isn’t even advancing by 1.0 percent per year.Leisure and hospitality average hourly earnings growth in the last year is a lowly 0.5 percent, while professional and business services earnings are 0.8 percent higher than November 2011.
His conclusion is sadly spot on:
One doesn’t have to be an economist to know that economic output and employment is a function of income and wage growth. Consumers cannot spend what they don’t have.
Well, in that case Krugman must be an economist to “know” that consumers can and will spend much more money than they will ever make as long as the US government keep handing it over to them and everyone somehow continues levering up in expectation of the magical “snap” moment, when this too trend of negative real wage growth will reverse just because, and everyone will be perfectly wealthy once again.
Because ECON101 said so.