Falling U.S. Wages Threaten Consumer Spending

[Roland99]

Source: Bloomberg

Ninety-one percent of people in the U.S. labor force have a job. That may be the extent of the good news for these Americans, whose incomes tell a darker story.

Take-home pay, adjusted for prices, fell 0.3 percent in August, the third decrease in five months, and personal income dropped for the first time in two years, the Commerce Department reported last week. The declines followed news from the Census Bureau that median household income in 2010 fell to $49,445, the lowest in more than a decade, and the poverty rate jumped to 15.1 percent, a 17-year high.

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While policy makers from Federal Reserve Chairman Ben S. Bernanke to President Barack Obama focus on cutting unemployment stuck near or above 9 percent since April 2009, the widespread stagnation in wages may offer a better explanation for the failure of economic growth to accelerate two years after the end of the recession. Workers’ ability to negotiate higher earnings won’t return until the job market strengthens, and flagging confidence has raised the risk that consumers may retrench.

Inflation-adjusted weekly earnings have fallen for six consecutive months, dropping 1.8 percent in August from a year earlier, a pace not seen since the 18-month economic slump ended in June 2009.

Read more: http://www.bloomberg.com/news/2011-10-02/falling-wages-threaten-u-s-rebound-as-consumers-may-retrench-on-spending.html