Friday, October 29, 2004

The remarkable failure of the Greenspan-Bush "stimulus" has always been its complete inability to wean itself from a housing wealth effect. Without job growth and wage/salary growth, this grand experiment in Big Government Conservatism will end very badly.

And if you needed any more confirmation that a 0.4% personal savings rate is only the tip of the iceberg, CNNMoney gives us a similar story from the Employment Cost Index.

Employment costs rose by slightly less than expected in the third quarter this year, up 0.9 percent, as benefit costs posted their smallest rise since early 2002, a government report showed Friday.

Wall Street had forecast the Employment Cost Index, a broad gauge of what employers pay in wages and benefits, to rise 1.0 percent between July and September versus a 0.9 percent gain the previous three months.

. . . salaries and wages gained 0.7 percent versus a 0.6 percent rise in the previous three months.

Over the past 12 months, wages and salaries are up just 2.4 percent, the smallest 12-month change in the history of the series, which began in 1981.
In nominal terms, the wages and salaries component of the ECI is indeed at its lowest point since the series began. However, the real (inflation-adjusted) ECI is not. In 2004:III real wages and salaries (per the ECI and deflated by the PCE price index) are up 4.2% so far over the Bush years. This number combines, however, the robust growth of 2001 with the the significant recent slowdown. Real wage/salary gains were either stagnant (2003:IV) or actually falling (2004:I-II) until this summer. Over the last year, they stand at a mere +0.2%.

Our current economy is frightfully dependent on disinflation. And when you're at 1%, you'll soon need outright deflation to keep people flocking to the checkout counter.


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