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As Wages and Hours Stagnate and Lag Inflation, Fed Declares Victory and Goes Home

As they wallow happily in their Fed generated stock market profits, employers continue to successfully squeeze the powerless US working class.

The BLS reported Friday that average hourly earnings rose by 1.2%  on a yearly basis to $23.81 in July. The annual rate of increase fell from 2.8% in June and 2% in May.  The rate of increase in average wages has fluctuated from 1% to 2.9% since 2010, averaging around 2%. It is now below that level after mostly weaker readings over the post 10 months. Meanwhile the June CPI rose by 2.9% on an annual basis, showing just how badly workers are getting squeezed. Furthermore 2.9% grossly understates the real rate of inflation due to the way the government suppresses the inflation gauge.

Contrast the wage gain with the 22% gain in equity prices over the past year and you where the Fed’s QE is working and where it isn’t.

Average weekly earnings look even worse than the hourly rate. They fell by 0.2% year to year, down from a strong gain of 4.3% in June. The drop was exacerbated by a drop in average weekly hours worked.

The reported job gains in July must be seen in that perspective. There were more jobs with less hours and lower pay. That’s been the pattern over the past two years.  The 12 month moving average in average weekly earnings has dropped from around 3% in 2011 to around 1.9% now. Contrast that with the 2.9% rise in reported inflation, which was actually much larger, and it paints a clear picture of just how badly the US economy is doing for the vast majority of Americans.

Average Weekly Earnings - Click to enlarge
Average Weekly Earnings – Click to enlarge


QE isn’t boosting the number of full time jobs and it isn’t boosting compensation.  Average hours worked fell from 34.9 in June to 34.2 in July, which is exactly the same as a year ago after a surge in June had made it appear that maybe the labor market was tightening a bit. But it was just a blip.  There is no tightening in labor market conditions. A massive oversupply of labor, particularly lesser skilled workers continues to depress wages and hours.

Average Weekly Hours Worked - Click to enlarge
Average Weekly Hours Worked – Click to enlarge

I have written essentially the same thing for the past half year in these next two paragraphs, which bear repeating.

Why isn’t all the new money which the Fed is pumping into the system causing job growth or wage growth? Many of the unemployed do not possess the skills that are in demand in the market.  Or they are overskilled. All of the growth is in low wage, low skilled service work. Economic pundits and FOMC policy makers must realize that the 10 million fake jobs spawned by the 2004-07 housing bubble are not coming back, which is why the Fed is trying to spawn new bubbles, hoping for the bubble jobs they create.

A 7.5% unemployment rate is probably “normal.”  It will only drop as the discouraged and despondent simply leave the labor force. The bubble unemployment rate of 5.5% was abnormal.  If the goal is to continue QE until the unemployment rate hits a target of 6.5%, then the policy is simply a matter of fomenting the next bubble to generate millions of fake jobs.

It is by now patently obvious that QE  is not working. Those jobs are not going to magically appear. Employers have learned that with the glut of labor, they can get more for less from their labor input.

This reality has finally sunk in with the clinically insane FOMC which has persisted in its delusion that QE helps in the face of 2 years of incontrovertible evidence that it does not.  They are likewise becoming aware of the dangers of inflating bubbles that are destined to collapse yet again. That’s why they will begin The Taper in September. The Fed’s liars and propaganda meisters will declare victory and go home. They are already at work on that, proclaiming that employment is doing fine and they’ve done what’s needed.

How does this matter to the stock market? It doesn’t really, except for the fact that whatever corporations are able to squeeze out of labor they’re able to squeeze into executive compensation, and possibly profits.  Eventually it will matter in a different way, and not a good way.

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