Wages And Spending Disappoint

Anyone still celebrating yesterday's 3.5% U.S. GDP growth estimate for the third-quarter might want to take off their pointy party hats. Some new economic indicators out this morning aren't pretty. Wages are growing at a snail's pace, and consumer spending has fallen off a cliff. This data suggests that the economy might not be in nearly as good shape as the GDP number suggests.

Here's what's happening with wages, via Marketwatch:

Wages increased 1.5% in the past four quarters, down from 1.8% in the previous quarter. Benefit costs rose 1.6% compared with a 1.8% rise in the second quarter. These are both record lows.

But there is some sort of good news that this produces:

The cost of employing a worker in the United States fell to a record-low level in the third quarter, the Labor Department reported Friday.


For the past year, the Employment Cost Index increased 1.5%, the slowest pace since the government began tracking the data in 1982.

Since wages have grown so little, businesses have lower wage expenses. That means once they begin hiring again, it will be relatively cheap for them to do so.

What happens when wages are low and unemployment is high? People don't buy much. The data shows this as well, also quoting Marketwatch:

Real (inflation-adjusted) consumer spending dropped a seasonally adjusted 0.6% in September after a 1% gain in August, the government said. It was the largest decline in spending since December.

Since holiday-fueled December! This sounds pretty awful, but might not be quite as bad as it looks. The September data was without the cushion that cash-for-clunkers provided in August. So it makes sense that spending exploded for clunkers, and then plummeted when it ended. Still, this number makes clear that the positive trajectory of spending from clunkers wasn't a sustainable path under these economic conditions.

This all reinforces the idea that consumers are hurting, a lot. It also indicates the thesis that business must lead the recovery continues to make the most sense.

Presented by

Daniel Indiviglio was an associate editor at The Atlantic from 2009 through 2011. He is now the Washington, D.C.-based columnist for Reuters Breakingviews. He is also a 2011 Robert Novak Journalism Fellow through the Phillips Foundation. More

Indiviglio has also written for Forbes. Prior to becoming a journalist, he spent several years working as an investment banker and a consultant.

How to Cook Spaghetti Squash (and Why)

Cooking for yourself is one of the surest ways to eat well. Bestselling author Mark Bittman teaches James Hamblin the recipe that everyone is Googling.

Join the Discussion

After you comment, click Post. If you’re not already logged in you will be asked to log in or register.

blog comments powered by Disqus

Video

How to Cook Spaghetti Squash (and Why)

Cooking for yourself is one of the surest ways to eat well.

Video

Before Tinder, a Tree

Looking for your soulmate? Write a letter to the "Bridegroom's Oak" in Germany.

Video

The Health Benefits of Going Outside

People spend too much time indoors. One solution: ecotherapy.

Video

Where High Tech Meets the 1950s

Why did Green Bank, West Virginia, ban wireless signals? For science.

Video

Yes, Quidditch Is Real

How J.K. Rowling's magical sport spread from Hogwarts to college campuses

Video

Would You Live in a Treehouse?

A treehouse can be an ideal office space, vacation rental, and way of reconnecting with your youth.

More in Business

Just In