Stagflation Alert As Wages And Salaries Roll Over

What a difference two months makes. Back in January, with jobs aplenty and Americans spending like drunken sailors (sending their savings rate to the lowest on record), average hourly earnings suddenly spiked, unleashing the February VIXplosion over concerns that the Fed is behind the curve and will be forced to hike much more aggressively.

Well, fast forward to today, when all those "green shoots" are either dead or on the verge, and after today's Personal Income and Spending report, it appears that it is stagflation that is once looming.

First, core PCE, the Fed’s favorite inflation gauge, rose 1.6%YoY in February 2017; the biggest gain since April 2017. Meanwhile, the PCE deflator rose by 1.8%, coming hotter than expected, just as the cellular service price collapse falls out of the Y/Y data, sending annual inflation higher by 0.3%, and is set spook the next set of CPI data. In other words, inflation is here.

Then there is the US consumer's reaction, and while until just a few months back the US savings rate was at all time lows, it has since jumped to 3.4%, the highest since August 2017, as households are no longer spending more than they can afford, a theme we observed at the end of 2017.  This also means that spending is lagging income for 3 consecutive months, as something appears to have spooked American consumers.

That something may be wages and salaries themselves, because while the BLS' statistical approximation of average hourly wages is just that, the BEA's personal income actually carries wages and salaries data for both private and government workers. What it found is that after peaking in December, wage growth for these two worker groups has declined for 2 consecutive months, confirming what many have warned, namely that the recent period of benign wage increase is over, and now the slowdown begins.

All of the above also leads into what we said yesterday, namely that household buying plans have plunged in recent months. For those who missed it, yesterday we showed that that "Conference Board 'Plans To Buy' Homes, Autos, and Appliance have all plunged in the last three months"

 

 

And now we know why: between higher prices, declining wages, rising savings (not to mention maxed out credit cards), and plunging spending plans, Americans have once tapped out.

Comments

Endgame Napoleon I woke up Thu, 03/29/2018 - 12:33 Permalink

If that ever happens, it’ll be the Charles Murray version, which gets rid of SS, replacing all of the social programs with a smaller UBI, a UBI that, minus $200 for a healthcare plan, leaves $800 per month to live on, whereas the average SS recipient gets $1,300 per month.

That is the only way the UBI would conceivably be affordable, but it would mean even more workers with government money chasing scarce jobs and driving down wages.

We already have tons of single mothers and illegal / legal immigrant households with sole, male breadwinners chasing jobs, willing to work for low pay and part-time hours due to free rent, free groceries, free monthly cash assistance, free electricity and up to $6,431 in refundable EITC child tax credit money, available to single-earner parents who stay within the earned-income limits for the programs.

The UBI is much fairer than the current partially socialized system that throws large numbers of underemployed citizens to the curb, while heaping government money on other citizens and noncitizens to reward sex and reproduction.

But it would be very, very, very hard to get a UBI past people with modest income who paid into SS, unlike the other 100% free monthly welfare and tax-welfare programs that reward womb productivity for citizens and noncitizens. That motherload of totally free stuff goes to people who work part time to stay below the earned-income limits for the programs. The citizens among them likewise collect SS when old, meaning they enjoyed the cradle-to-grave European-style socialism.  

People who paid into SS at between 7.65 and 15.3% of every penny earned up to the $127,200 SS cap are the likeliest voters. Regardless of how bad it gets, short of total collapse, I bet, if the UBI ever gained steam, the SS-aged protestors would make the banner-waving, pink-hatted youths, protesting fake sexism, look tame, especially since the elderly actually show up to do their civic duty on voting day.

We already have a partially socialized marketplace, both on the labor side and the consumer side, and the new business growth and tax revenue are down. But 50 million citizens are out of the workforce, and half of the employed-in-name-only earn $13,000 per year on average. 

 

In reply to by I woke up

Endgame Napoleon FreeShitter Thu, 03/29/2018 - 12:50 Permalink

Most of them have hope, poised on the thin precipice of a $40 Costco-sized tax return, but the “poor” womb-productive monthly welfare consumers get an up-to $6,431 yearly tax return, which equals 3 months of wages. The dual-earner parents with higher incomes also get a few extra thousand every year in a tax return, but without the other freebies, like the free rent and free food that go to the womb-productive single earners. 

In reply to by FreeShitter

Endgame Napoleon Seasmoke Thu, 03/29/2018 - 12:56 Permalink

Sometimes, I think it would be nice if ZH allowed us to post pics. Think what people could do with that image idea: the Yellen / Powell wedding. Sign up for the registry now. At first, the happy couple were going with Nordstrom’s, but then they thought better of it, feeling that a Wal*Mart gift selection was not even affordable to their guests. Janet says, shop the clearance aisle. Everything does not have to match.

In reply to by Seasmoke

SillyWabbits Thu, 03/29/2018 - 09:37 Permalink

Understeering is when you see what you're going to hit.

Oversteering is when you can't see what you're going to hit.

The economy is suffering from too much oversteering!

The Ram Thu, 03/29/2018 - 09:41 Permalink

Yes, they can create more 'credit', but the peeps may not take the bate this time.  From my perspective in South, FL, I think things are slowly grinding down.  I am sure there are other parts of the country where things still look 'peach keen,' but my guess is those would be restricted to silly valley and Washington, DC, bastions of extreme false reality.  Ah....., a dose of reality does smell so nice in the morning.  Just like my coffee brewing! 

DaGov Thu, 03/29/2018 - 09:46 Permalink

What happened to ZeroHedge? It used to provide unique viewpoints and inside information.  For the last 6 months there have only been two kinds of articles. 1) The world economy is going to collapse soon (being reported since 2011), and 2) Nuclear war will break out any minute! (reported since 2015). 

3-fingered_chemist Thu, 03/29/2018 - 09:46 Permalink

The last two days I've received notices from the companies that manage the two credit cards I have that they increased my credit limit. Did I ask them? Nope. Do I want them to increase the limits? Nope. The US economy cannot function without ever increasing debt. The system is beyond repair and the sooner it dies, the better off we will be.

bigloser Thu, 03/29/2018 - 10:03 Permalink

I made $30 last night as a volleyball ref, so everything isn't going to shit. At least, not yet.

When they stop paying volleyball refs, I'll start worrying, or, move on to tennis.

Ink Pusher Thu, 03/29/2018 - 10:20 Permalink

Knock, Knock, Knock,Knock...

Bang,Bang, Bang, BANG !

Open up ! 

We heard you got a raise and a bonus this year and your salary is listed on the international sunshine list.

We want to sell our souls to the corporation you allegedly work for so we can benefit from the same treatment.

Oh... You aren't hiring? Why is that ?

Your corporation posted record profits for the past three years selling weapons of war and civilian suppression technologies.

*Fast Footfalls approach, private security goons arrive on scene....

Oh, never mind... So sorry to have wasted your valuable time.

 

Kokulakai Thu, 03/29/2018 - 10:52 Permalink

At least "Tapped Out" reduces the likelihood of hyperinflation.

Their misguided plans for universal income may, however, overcome that hurdle.