The Real Wages Story

Wages are a lynchpin to various elements of the economy. Without wage growth, consumers don't have more money to spend on goods. In turn, it is nearly impossible to get significant consumer goods inflation without robust wage growth. And there is the question of how much labor slack really exists, i.e., is the decline in labor-market participation cyclical or structural? Wages are a good gauge of that question as well. If wages start rising significantly, even in the face of high unemployment, it means those who have "dropped out" of the labor force aren't being enticed back by new job creation, therefore, employers have to bid higher wages to attract labor.

So, what's actually going on with wages, and what does it tell us about employment, inflation and the Fed? Private-industry wages grew at a 1.9% rate over the last 12 months, a mild acceleration over the 2011-2012 average of 1.7%. But as the chart below shows, this growth rate is far off where it was in 2007-2008 and does not appear to be producing any kind of consistent and/or meaningful acceleration....464 more words left in this article. To read them, just click below and try Real Money FREE for 14 days.

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