Real wages look set to fall further
as stagflationary trends intensify:
Investors got mixed signals on inflation in a raft of new economic data on Thursday, with a key gauge of wage inflation posting an improved reading while a barometer of manufacturing prices posting a sharp increase.
By 'improved reading', of course, they mean that wages didn't rise as much as feared by the investor class. Heck, wages didn't even keep pace with productivity improvements:
Also giving support to the belief that inflation pressures will stay contained was a Labor Department report that revised its estimate of first quarter productivity up to a solid 3.7 percent, better than an initial reading of 3.2 percent.
And unit labor costs, the amount employers must pay for each unit of production, rose at a moderate 1.6 percent rate in the first quarter, down from a worrisome initial reading of 2.5 percent.
But manufacturing prices are rising while output slows:
Analysts said manufacturing momentum has ebbed significantly over the past four months, reflecting weaker orders. But an inflation gauge tied to the manufacturing index jumped by the sharpest amount in eight months, reflecting rising costs for raw materials.
And slowing output is justified by slowing sales of such big-ticket items as gas-guzzlers:
Sales of American cars and trucks fell steeply in May, automakers reported today, with both General Motors and Chrysler posting double-digit declines.
...General Motors led the drop among the American automakers, falling 15.7 percent over last May when the numbers are adjusted for the difference in selling days. The company also said it would reduce third-quarter vehicle production in North America by 8.4 percent, a sign of its weakening position in its biggest but least profitable region.
Meantime, the new guys at the Federal Reserve and the Treasury are faced with with the task of
helping to guide the economy from a period of fast growth and cheap money through one of higher interest rates, jittery markets and a falling dollar....
For the first time in nearly two decades, inflation is on an upward rather than downward trend. Energy prices remain near historic highs, even though oil prices dropped on Wednesday as immediate fears of a confrontation with Iran eased. Long-term interest rates -- the fuel that powers the housing market when they are low -- are on the rise.
High energy prices were part of the inflationary shock of the 1970s. What has changed since then is that corporations have grown more ruthless, enabled by their Republican allies in Congress and the White House, plus globalization and the weakening of labor unions. This means that inflationary pressures are now responded to somewhat differently. Rather than granting pay increases and being as quick to pass on higher labor costs to consumers in the form of higher prices as they were in the 1970s, corporations are more likely to try to absorb inflationary pressures by cutting real wages and the real cost of employee benefits.
The Bureau of Labor Statistics reports Average Weekly Earnings in 1982 dollars. Over the past 30 years here's what you see for inflation adjusted wages for "non supervisory employees which represents the bottom 80% of the US population".
April 1976....$306.90
April 2006....$277.38
(Remember, that's in 1982 dollars.)
That's an average real wage cut of $29.52 per week over the last 30 years. That, in essence, is how American capitalism has dealt with inflationary pressures. It has offloaded the real cost onto the workforce. This is why we're unlikely to see double-digit inflation. But we may get double-digit real wage cuts all the same.
Of course, Bush can't be blamed for all of that, though his anti-labor policies sure don't help matters. But what he can be blamed for is squandering an historic budget surplus on reckless and inequitable tax cuts for the wealthy, whose consumption patterns are more cosmopolitan than ever (luxury imports, foreign travel), and whose favorite export is good-paying American jobs. This translates to major structural problems for the US economy and downward pressure on the dollar, which itself adds to inflationary trends:
Meanwhile, the economy faces structural budget deficits that will not disappear without major changes in taxes and spending, and the Fed could find itself in a clash with the Bush administration if budget deficits remain high.
Perhaps most important, however, investors around the world have become more anxious about the United States' huge trade deficits and its ballooning foreign debt. That is pushing down the value of the dollar, a trend that would help reduce trade imbalances but has also elevated worries about a more painful crash for the American currency.
That reckoning due to monetary and fiscal profligacy is in sight:
Much of the uncertainty stems from a shift at the Federal Reserve and other central banks. After propping up economic growth by keeping interest rates far below normal levels, the central banks are removing the cushion of cheap money.
"The marketplace over all is being forced to reabsorb risk that formerly had been underwritten by the big three central banks -- the Fed, the Bank of Japan and the People's Bank of China," said Paul McCulley, managing director of Pimco Advisers, the giant bond management firm. "When you've got all three taking away the punch bowl, the partyers at the party are not going to be happy."
Of course, for some the party never seems to end:
Big Bonuses Still Flow, Even if Bosses Miss Goals
It was the kind of mistake that wage slaves can only dream of. Because of what the company called an "improper interpretation" of his employment contract, Sheldon G. Adelson, chairman, chief executive and treasurer of the Las Vegas Sands Corporation, received $3.6 million in salary and bonus last year, almost $1 million more than prescribed under the company's performance plan....
....As executive pay packages have rocketed in recent years, their defenders have contended that because most are tied to company performance, they are both earned and deserved. But as the Las Vegas Sands example shows, investors who plow through company filings often find that executive compensation exceeds the amounts allowed under the performance targets set by the directors.
Executives of companies as varied as Halliburton, the military contractor and oil services concern; Assurant, an insurance company; and Big Lots, a discount retailer, all received bonuses and other pay outside the performance parameters set by the boards of those companies.
My take on Bush-vintage Republican economic ideology?
Never has so much avarice been so cynically enabled by so much intellectual dishonesty. Or to put it more Cheneyesquely, Kudlow & Co., go fuck yourselves.