Income Stagnation: the greatest threat to recovery
by New Deal democrat
Mon May 17, 2010 at 07:40:21 AM CDT
The most acute threat to the economic recovery that has begun is the same as the biggest chronic problem for the middle/working classes for the last 45 years: a lack of real wage growth. Only twice in the last 45 years has there been real wage growth (that is, wages growing faster than inflation) for more than a year or so. In 2009, the bottoming of the Great Recession was helped by the fact that wage growth, although paltry, nevertheless was accompanied by a decrease in gasoline prices that gave consumers (the 85% or 90% who were employed) more disposable income.
That situation reversed in the last 6 months and now poses the most direct threat to the sustainability of the recovery. I explain why, below.
Here is what I will show you below:
1. There has been a long-term stagnation in wages
2. American consumers have coped in two ways - refinancing and cashing in appreciating assets
3. When neither coping mechanism has been available, recession has inexorably followed
4. In this recovery, Wage growth is pathetic
5. No widely held middle-class assets are appreciating
6. Refinancing at lower interest rates is taking place but not at a great pace
7. The price of Oil in particular will determine if inflation can remain in the "sweet spot" necessary, given low wage growth
8. This is a very narrow needle to thread and the biggest ongoing threat to the sustainability of the recovery more