Real wages have declined for the 2nd straight year. This decline greatly affects the ability of American consumers to buy their own production. Combined with an anticipated decline in home equity extraction, consumer spending would also be anticipated to decline. The declining ability to borrow, coupled with declining wages, reduces the money available for consumer spending. Given that consumer spending is 2/3 of economic activity, and 2/3 of our GDP, this portends a slowdown in economic growth as well.

Though nominal wages have increased 3.5% over the last year, when adjusted for inflation they have DECLINED 0.6%. January's real (inflation-adjusted) hourly wage was $8.18/hour (in 1982 dollars). This is a -0.6% change since January 2005's $8.23/hour. Worse still, this is a DECLINE of 1.1% since January 2004's $8.27/hour. This information can be found at the United States Bureau of Labor Statistics at http://data.bls.gov/PDQ/servlet/Surv...=CES0500000049.

Despite Bush Administration spin, American workers are losing ground. They're ability to purchase production through wages is steadily declining. Since consumer spending is 2/3 of all economic activity, this erosion in purchasing power spells trouble for our economy.

Over the last 2 years, consumer spending increases have been sustained through increased borrowing alone. Home equity extraction for 2005 was $243 billion, according to Bloomberg News http://www.bloomberg.com/apps/news?p...d=aE50ss.wrOM0

Home equity extraction would account for 63.3% of our economic growth in 2005. As such, home equity extraction could account for nearly all of the 66.7% (2/3) fraction attributable to consumer spending. Thus it is increased home equity extraction, not wages, that have maintained consumer spending, consumer demand, and GDP growth.

Consumer spending increases are necessary for continued economic growth. According to Bloomberg News, home equity extraction is expected to DECLINE $126 billion from $243 billion down to $117 billion in 2006. This would be a 52% decline, and a 52% decline in consumer spending power. This source of spending is nearly equal to all of our spending growth. With a 52% reduction in consumer spending power, spending would also decline 52%. If 2006 consumer spending remains 2/3 of of economic activity (and GDP), it would reduce our GDP growth by the same 52%. A 52% reduction in this year's 3.2% GDP growth would leave a 2006 GDP growth of only 1.54%.

Considering 2 straight years of declining real wages, there is no reason to think real wages will rise in 2006. As such, wages won't make up for the spending loss from decreased home equity extraction. Less consumer spending will result in less consumer production demand, less demand for workers to provide that production, and declining wages and employment as a result.

It definitely looks like we're in for a year of significantly slower economic "growth." How much slower remains to be seen. With a December Durable Goods Order decline of 10%, the biggest decline in 5 years, the economy is not looking good.


unlawflcombatnt

EconomicPopulistCommentary

Economic Patriot Forum

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The economy needs balance between the "means of production" & "means of consumption."

Real wages are declining, yet does that automatically mean doom and gloom? If we consider the facts that following the recessions in 1980 - 1982 where real wages declined 1.5% in the following three years and the 1990 - 1991 recession where real wages fell 2.0%, the real wages in 2004, three years following the 2001 recession real wages are 1.9% higher. Let see, I guess this breaks the mold, doesn't it???

Real wages are a good indicator in comparing historical trends, however, they have their weaknesses as well. They do not take into consideration other forms of compensation that employees may accept. Today, benefits that employees take in lieu of wages make up almost 32% of a persons salary. These benefits include health care, life insurance and retirement contributions. That perhaps explains why Real Compensation Per Hour is rising and has continued to rise.

Also, it is interesting to note that the Real Disposable Personal Income has risen by 3.4% over the past year. So whereas real wages may be down, it seems that real compensation and disposable income are up. I guess if you dig hard enough you can always find something wrong.

dmk

unlawflcombatnt's rebuttle??

He has none. All one can find is a drop in the real wages, when other indicators are examined, they betray any contention made on that sole basis.