Guest Post: Wages And Consumption Are Both In Long-Term Downtrends

Tyler Durden's picture

Submitted by Charles Hugh Smith from Of Two Minds

Wages And Consumption Are Both In Long-Term Downtrends

Employment, wages, income and consumption are all in long-term downtrends, and the policy of grandiose stimulus funded by debt has failed spectacularly to reverse these secular trends.

Courtesy of frequent contributor Chartist Friend from Pittsburgh, here are four charts of wages, income and consumption. The charts depict changes from a year ago (also called year-over-year) and the percentage of change from a year ago. These measure rates of change as opposed to absolute changes, and so they are useful in identifying trends.

As I noted in Why the Middle Class Is Doomed (April 17, 2012), advanced economies are caught in the pincers of rising costs of essentials (not just food and energy but education and medical care) and a global oversupply of labor that has been "localized" by the Internet, i.e. previously localized labor can now be performed anywhere on the globe.

The build-out of Internet infrastructure that culminated in the dot-com boom boosted employment, wages and consumption, and the credit-housing bubble of the mid-2000s also boosted income and consumption. Now that these temporary conditions have faded, what's left is the relentless chewing up of traditional industries by the Web as distributed software boosts productivity while slashing the number of people required to create value.

What's remarkable about the first chart is the increase in volatility in recent years: the changes in wages and salaries are increasingly dramatic. This might be reflecting the dynamics of the global economy pulling wages lower while massive financial-stimulus policies of the Central State and bank (the Federal government and the Federal Reserve) act to artificially boost wages with trillions of dollars in borrowed/printed money.

The downtrend is clearly visible in this chart: lower highs, lower lows.

Real disposable personal income includes government transfers such as unemployment, which have soared in the "recovery." Higher taxes reduce disposable income, so we can anticipate lower personal income as bloated government spending is slashed and taxes rise.

Real personal consumption rose on the back of unprecedented Central State/bank stimulus, but the boost provided by this injection of financial sugar is over and the economy is about to suffer glycemic shock as the costs and unintended consequences of this grandiose attempt to restart a virtuous cycle of "growth" with trillions of dollars in borrowed and printed money limit future injections of stimulus.

We can anticipate declining employment, wages, income and consumption as consequences of long-wave global trends, over-indebtedness and failed policy, i.e. doing more of what has already failed spectacularly.

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Plymster's picture

Welcome to credit-driven deflationary depression.

Jason T's picture

I'm wondering if we'll get inflation due to very poor rates of productivity growth.. lack of investment and infrastructures having disintegrated everywhere.. nation is rusting all over the place.. 

hawks5999's picture

So what happens when that wage trend hits a rising minimum wage? 

Should push us right back up to full employment, right?

Oh wait...

Squid Vicious's picture

nonsense - hurry up and give me a triple venti mocha latte and tell me where i bought it... I'm late for my yoga class

Shizzmoney's picture

Employment will stay steady, but taxes will rise and wages will fall.

There's nothing worse than a society of workers who feel they are getting the shaft.  At some point, shit gives. 

TeresaE's picture

Reported employment maybe.

But as an employer, that talks to other employers everyday, good luck with that.

Unless you really think WallyWorld will be able to fill the void of another 10-25% of our small business bosses.

We are being absolutely crushed this year by regulation, inflation and jackbooted do-gooders that want us to spend more time following their rules than we have to spend making the money they so badly want to take from us.

Come Jan to April next year, barring a complete about face by local, state and federal rules and taxes, we'll see what "steady" looks like.

Fiat on, and make sure your drop most of yours into a mega-corprations' coffers.  Cause obviously that is helping employment dramatically.

truehawk's picture

Do gooders are one an itch, but lack of disposible income in your buyers will kill you. 

When the Space Shuttle was operating there were thousands of healthy small businesses capturing and reciculating the salaries of the workers.

Now launch has shut down, those businesses are gone and so is just about every thing else. 

The same thing happened in California in 1990 after the gulf war. The Federal Government in California cut spending in California 30 Billion dollars, and the California Economy contracted 200 Billion plus, because all the small and medium size businesses depended on the people having disposiable income to have their dogs clipped, their children taught to dance, to eat out and go to the theater, and buy bikes and hiking gear. Without the inffusion of R&D dollars, the whole economy shrivled to a husk of itself.  The oppertunities of small business depend on people having disposible income to buyA what ever the business is selling. When more and more of the money is going to fewer and fewer individuals, there are fewer actors able to buy. 



The Alarmist's picture

The only saving grace is that there are die-hard optimists who will start a business even with the deck stacked against them. The rest of us, who are too smart to start a business in such a punitive environment, have simply become a part of the problem and should probably be frog-marched to the rice paddies.

Jason T's picture

I was tinkering with these same charts yesterday.. and concluded same thing.  

What I"m also curious about is productivity.  High inflation will come about when both productivity declines.. due to lack of investment AND money printing or more debt growth.  Productivity gains have been small around the world and are not growing much in the US.  May 5th we get Q1 output per hour data.  

MachoMan's picture

Productivity, in the absolute sense, is limited at best moving forward.  This is the benefit of technology combined with the realization of resource constraints, despite what the academic vacuum might otherwise suggest.  We're going to have to figure out what to do with idle hands...  and none of the decisions will be easy for other than reptiles. 

blunderdog's picture

"Productivity" has basically been a nonsense term for a good while now.  It can't be measured, it has to be calculated, and I don't see much reason to believe the figure provides a meaningful metric.

Profits can often be increased (especially short-term) by cutting staff, and that's then labelled "increased productivity," but there are often hidden losses that don't become clear until quarters or years later.

carbonmutant's picture

Well you could always work for your unemployment check... under Obama's new plan.

Debeachesand Jerseyshores's picture

The result is we will have a permanent unemployed and underemployed class of people which will be dependent on the Government and private charities for the necessities of life.


In other words,America will become the 21st Century version of Charles Dickens 19th Century England.

wisefool's picture

Well accoring to government thinking, if something is in decline, tax it twice as hard!


The Big Ching-aso's picture



Well here's another, No Shitter.  If it ain't going up, it's going down.  Nothing's perfectly flat in this world except for my H.S. sweetheart.

ThirdCoastSurfer's picture

Oh, for the good old days of excess consumption involving alcoholism, addiction and obesity.  

Oh, the irony in that the more you curb immorality, the more you curb consumption! 

wisefool's picture

Al Gore recently purchased a 9,000 sq ft. home on the california coastline. I think everything is realtive.

penexpers's picture

Within a decade industrial and agricultural production will be heavily automated which will push more and more people into the position of being unemployed or underemployed. What will be done with the masses of the poor and disenfranchised? Well, elites like Rockefeller, Kissinger, Brezinski, Gates and Turner are obsessed with a "Post-Industrial Green Economy", which is a fancy way of saying Global Fascist Technocratic Dictatorship, and the culling of the world's population through whatever means necessary.

They clearly want the world for themselves.



wisefool's picture

You can drink, raise chickens (reptoids with a complex heirarchy- cited), and/or become a tax attorney to pass the time on this God given earth.

Then there is the violent stuff you cited, that low IQ people -- especially Kissenger (as cited) -- engage in.

TeresaE's picture

Do we really need a freaking chart to show us what our eyes see everyday?

All those dark and empty buildings with empty (or nearly) parking lots are absolute, positive, proof of the fact the middle class is being gutted.

In the '90s, and for decades, small biz made up 70% of all private economy jobs, in 2006 it had dropped to 45%, now, I would bet we are close to 40% (or less).

We will NEVER see a true "recovery" as long as that number continues to decline.

Doesn't matter what the guv says, doesn't matter what Wall Street shows.

Those empty parking lots say it all.

We are headed towards a three class society. 1-the masses including the former small biz and non-union, 2-the politicial and their protected unions, and 3-the mega-corporate/mega-wealthy that will eventually take our money and run like hell to escape the government and the angry masses.

Fiat on folks, we ain't seen nothing yet.

truehawk's picture

"Real disposable personal income includes government transfers such as unemployment, which have soared in the "recovery." Higher taxes reduce disposable income, so we can anticipate lower personal income as bloated government spending is slashed and taxes rise."

"HIGHER TAXES reduce disposible income"????

Lowered. Income taxes have been lowered. 

Tyler are you now in the employee of Fox NEWS?

Otherwise why are you republishing a non-reality based statement?

Dingleberry's picture

I see some "growth"....there always seems to be jobs for waitresses, barristas, strippers and such.  I imagine Wal-Mart will always need associates. Tattoo "artists" seem to be in demand. McD's hires, too. At least someone will have a job.