Over the past few months I have been pointing out that inflation by various gauges, including average weekly earnings, has been running well ahead of the Fed’s 2% desired target. The Fed however, focuses on the bogus core PCE measure, which is released only quarterly, well after the fact, and does not include most things that are necessities like food and energy, which have been steadily trending upward. Bernanke himself has often referred to restrained labor cost increases as a good thing.
Now the mainstream media is beginning to catch on with the data I’ve been reporting, but which the mainstream has ignored, seemingly forever. Note the euphemism for wage inflation, “increased purchasing power.” Average hourly earnings are also rising, only not quite as much as the total paycheck. Average hours worked (chart below) are rising steadily, which ultimately will put upward pressure on average hourly wages. Low skilled workers will continue to lag in pay, and there will continue to be a big mismatch between available skills in the market and what employers need, but there’s definitely evidence of tightness building in the labor market. As always, by the time the Fed wakes up, it will be too late.
Americans’ paychecks in the first half of 2012 grew at the fastest pace in five years, pointing to an improvement in purchasing power that may help propel the economic expansion.
Wages and salaries for all employees increased at a 4.8 percent annual pace from January through June after adjusting for inflation, the most since March 2007, according to calculations by Harm Bandholz, chief economist at UniCredit Group in New York, based on data from the Commerce Department. The pickup contrasts with last week’s Labor Department report that showed the smallest gain in average hourly wages on record.
“What matters to people is the size of the paycheck,” said Stephen Stanley, chief economist at Pierpont Securities LLC in Stamford, Connecticut. “How much money you get in the bank, that’s what I care about.”
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