Households are in a poor position to sustain U.S. economic growth because their wages are failing to keep pace with inflation, according to Pavilion Global Markets Ltd. strategists.
As the CHART OF THE DAY shows, average hourly earnings at private employers have fallen on an inflation-adjusted basis all but once since February 2011, according to monthly data compiled by the Labor Department. The exception occurred in July, when so-called real earnings were unchanged.
“Consumers will spend more only if they feel richer,” Pierre Lapointe, head of global strategy and research, and two colleagues at Pavilion wrote in a Nov. 21 report. They don’t at the moment because of the effects of inflation, the report said.
Real earnings may decline as long as U.S. unemployment exceeds 6 percent, the Montreal-based strategists wrote. Last month’s jobless rate was 7.9 percent, and most economists in a Bloomberg survey expect this month’s figure to be unchanged.
Spending is poised to stall next year unless prices of financial assets and homes keep rising, which would lead to greater household wealth, they wrote.
The Standard & Poor’s 500 Index has advanced 12 percent this year and the Treasury’s 10-year note has produced a return of 5.5 percent. House prices increased 6.8 percent in the first eight months of the year, according to the S&P/Case-Shiller index for 20 U.S. cities.
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