Creating Wealth Again In America

We've been waiting so long for real wages to move up, we almost missed it: After four years into an economic expansion, a productivity-led boost in real wages occurred in the third quarter. If it continues for the rest of the '90s, living standards for most working Americans will soon be rising.

Here's what's happening. First, productivity is soaring. Last quarter, nonfarm productivity rose 3.4% from a year earlier. That's big--following a 1.9% jump in 1994. After all, the average yearly rise in the '70s and '80s was only 1%. With higher productivity, companies can reap fat profits with lower prices. In fact, corporations are falling over themselves to cut prices. Retail price tags in the third quarter fell by 0.4% from year-ago levels. There is now real deflation going on in computers, apparel, household appliances, medical equipment, and gasoline. This means that even though money wages--the dollar amount of wages--aren't going up much, what the paycheck buys is growing. Ergo, real wages are moving up.

Those productivity-generated corporate profits are prodigious. Average third-quarter operating earnings for companies in the Standard & Poor's 500-stock index rose 21%, to hit $40 a share on a seasonally adjusted basis. Companies, flush with profits, are beginning to share the wealth with employees.

We hope this continues for the rest of the decade. The third quarter had high growth, super productivity, low inflation, great profits, as well as rising real wages. These are the elements of real prosperity in America.

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