Chart of the Day: Americans' Declining Purchasing Power

By Daniel Indiviglio

By now, you probably already know that the government released a very discouraging unemployment report for June on Friday morning. Few jobs were created and the rate ticked up to 9.2%. But the Bureau of Labor Statistics also includes how wages change in their monthly report. This statistic isn't as exciting and flash as jobs, so it doesn't get as much attention. But when a recovery is dependent on spending, wages are arguably just as important: if they aren't rising, people won't be eager to spend more. If you look at how real hourly earnings have changed throughout 2011, you begin to see one reason why the recovery is sputtering.

Below, you'll find a chart showing the BLS statistics for average weekly earnings. I have adjusted all months for inflation based on May 2011 dollars, except for June -- since the month's inflation data isn't available yet. Presumably, however, there was some inflation in June, so if anything, it will make the current wages look even lower on a relative scale.

real wages 2011-06.png

What this chart really shows is the purchasing power of the average American. Even though wages had generally increased since last fall, inflation has risen faster. So after peaking in October, purchasing power has steadily declined. As I noted in my analysis of the unemployment report, Americans experienced a particularly dramatic $2.64 earnings decline in June -- even before adjusting for inflation.

Without taking the month's additional inflation into account, June's wages were the lowest since July 2009. And really, they remain in the range of what we saw as far back as 2006. Since that time, it appears that Americans' real wages haven't grown much.

As inflation continues to maintain its moderate pace, wage growth must keep up in order for Americans to purchase more goods and services. Yet earnings haven't growth enough recently, and this explains why businesses aren't sensing more demand. Even as consumer spending increases modestly, those dollars are buying fewer goods and services. This trend will keep hiring weak and unemployment high.

This article available online at:

http://www.theatlantic.com/business/archive/2011/07/chart-of-the-day-americans-declining-purchasing-power/241650/