"Costs Are Rising, Wages Are Dropping" - The 'Real' Economy That Obama Left For Trump

As President Obama held his last press conference this afternoon, basking in the warm afterglow of an over-sampled poll showing his favorability near record highs, it would appear he (and the press corps) forgot to mention that for most Americans - the 80% in production and nonsupervisory roles - this morning's data showed real wages actually dropping for the first time since 2013.

Bloomberg's Vincent Cignarella notes "Costs are rising, while pay isn’t: is the U.S. on the road to stagflation?" Disposable income for U.S. consumers, as measured by real average earnings, took another turn lower in December as we noted earlier with headline inflation rising above 2% for the first time in more than two years.

As The Wall Street Journal reports, for several years now, wages have become a key barometer not only on the recovery, but on how much of the recovery is filtering down to the working class.

Companies have been reluctant to invest in their business without clearer signs of consumer demand, the key ingredient in crafting a organically strong economy. Wages and consumer demand trends underlie every valuation bet being placed in the markets right now. Understanding what is and isn’t happening is critical.

The inflation numbers get netted out against wage growth, to produce the “real,” or inflation-adjusted, wage rates.Average hourly wages, as per the December jobs report, rose 2.9% from a year ago. So, if you just compare that number to the inflation number, real average hourly earnings rose 0.8%.

A deeper dive, though, reveals that for many Americans, their wages are not outpacing inflation at all. For all production and nonsupervisory employees – a group that comprises 80% of all jobs in america – total average weekly earnings in December rose to $732.48 (about $38,000 a year) from $718.79 – up 1.9%. That rate is below this morning’s inflation numbers.

So, again according to the BLS, average weekly earnings fell 0.1%.

More