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Tags: low | wage | worker | gains | report

Report: Low Wage Workers Saw More Gains in 2013 Than High Earners

Monday, 24 November 2014 05:58 AM EST

The benefits of the U.S. recovery that began more than five years ago are flowing downward.

Lower-wage workers saw bigger pay gains over the past year than the highest earners, reversing the trend from earlier stages of the recovery, according to economists at RBS Securities Inc. and Goldman Sachs Group Inc. While the improvement is nascent and minimal, the plunge in fuel prices is magnifying the effects.

Fatter paychecks bode well for economic growth as families at the lower end of the wage scale are more likely to spend extra cash than their wealthier counterparts, who tend to squirrel some of it away. That means the luxury categories such as private jets that dominated sales last year are giving way to the more mundane, including televisions and restaurant meals.

“For the first time, real paychecks of households in the middle class are not getting smaller anymore -- they’re getting incrementally bigger,” said Guy Berger, a U.S. economist at RBS Securities in Stamford, Connecticut. “This puts a little more strength behind consumer spending because you’re not very dependent on a small core of very wealthy households to power the recovery.”

Total income for those making less than $12.50 an hour climbed 3.8 percent in the year through October based on a three-month average adjusted for inflation, according to a Nov. 13 report by Goldman Sachs economists. The gain, which takes into account hourly wages, the length of the workweek and employment, exceeded that by any other group and compared with a 2.5 percent increase for those making $45 an hour or more.

Wage Gains

The advance among the lowest earners was paced mainly by a pickup in hourly wages, while those at the upper end benefited more from a longer workweek, the report showed.

Susan Carpenter, a 44-year-old supervisor at a Lincolnton, North Carolina, factory that makes oil filters, said she can see the improvement. The two raises she’s received since starting work in February 2012 both occurred this year. She now makes $12 an hour -- up from about $10 last year, and is putting in more than 40 hours a week.

For now, she’s using the extra money to “get caught up on bills,” Carpenter said. “I’m just now trying to get ahead. Hopefully by the middle of next year I’ll actually get to have some savings.”

An October report by New York-based Goldman economists Jan Hatzius and David Mericle showed real pretax income of production and non-supervisory workers, which accounts for about the bottom 80 percent of the private-sector wage distribution, rose 3.5 percent in August from the year before.

Picking Up

A further pickup to around 4 percent is probable over the next six months, they said. Except for one year at the end of the previous expansion, that’d be the fastest pace of growth since the 1995-to-2000 boom, Hatzius and Mericle wrote.

Though income inequality has increased over the longer- term, the data are “consistent with other indications showing a relative improvement at the bottom end of the income distribution over the past year or two,” they wrote.

What full-time workers at what economists call the 10th percentile -- making more than the bottom 10 percent of the workforce and less than the other 90 percent -- usually earn per week has risen for the past six quarters after adjusting for inflation, according to Berger’s calculations based on Labor Department data. Earnings for workers at the 90th percentile have fallen in the past year.

“It’s the man on the street that now thinks, for the first time, things are on the margin getting better,” Berger said.

Improving Sentiment

Sentiment surveys are reflecting the improvement. Americans making from $15,000 to $25,000 a year have experienced the biggest jump in confidence in 2014 so far, according to data from the Conference Board, a New York-based research group. Those making more than $125,000 led the pack in 2013.

More jobs and cheaper gasoline are probably playing a role in lifting the average worker’s spirit. The unemployment rate dropped to a six-year low of 5.8 percent in October and payrolls are on track for their biggest gain since 1999, according to Labor Department data.

The average price of a gallon of regular gasoline was $2.84 on Nov. 20, the lowest level since late 2010, according to auto group AAA.

“Lower gas prices come at an opportune time,” said Gregory Daco, lead U.S. economist at Oxford Economics USA Inc. in New York. “If you combine stronger wage growth with ongoing payroll growth, higher confidence and that extra kick from lower gas prices, then you’re set for a fairly strong holiday season and more importantly stronger momentum for consumer spending heading into 2015.”

Gasoline Stations

Carpenter is among those benefiting. With a 25 minute drive to work each way, she was spending about $40 every week at the service station, she said. The drop in fuel prices has cut that to about $25 or $30.

Combined with the raises, that means “I’ll actually be able to buy a little something this year” for the holidays, Carpenter said. “Last year I couldn’t.”

Only the richest Americans enjoyed gains in earnings during the expansion from 2010 to 2013, with median income adjusted for inflation rising 2 percent to $223,200 for the wealthiest 10 percent of households, according to the Federal Reserve’s Survey of Consumer Finances. Median earnings fell for all others in that period, with the bottom 60 percent seeing the biggest declines.

Last year, pleasure aircraft was the fastest growing consumer-spending category, increasing almost 25 percent, according to economists at Morgan Stanley. So far this year, televisions have taken the top spot.

Television Sales

Richfield, Minnesota-based Best Buy Co., the world’s largest electronics chain, reported a surprise sales gain in its fiscal third quarter amid demand for higher-definition TVs, with comparable-store revenue rising 2.2 percent.

As earnings gain momentum among lower-income households, purchases of clothing, autos and restaurant meals will also benefit, according to the Morgan Stanley economists. Americans in the bottom 60 percent of the income scale account for $4 out of every $10 spent by consumers, the bank’s research shows.

Dollar Tree Inc. is looking forward to the holidays. The Chesapeake, Virginia-based discount variety chain last week reported sales and earnings that beat analysts’ estimates in the three months ended Nov. 1 and said momentum continues.

“Our customers are shopping more frequently and buying more on each trip,” Chief Executive Officer Bob Sasser said on a Nov. 20 conference call. They are buying a wide spectrum of items, including basic necessities and more discretionary items, he said.

Stronger wage and salary growth is “essential to the macro outlook,” said Ellen Zentner, a senior economist at Morgan Stanley in New York. “You’ll get a more balanced consumer with spending across more income groups.”

© Copyright 2023 Bloomberg News. All rights reserved.

The benefits of the U.S. recovery that began more than five years ago are flowing downward.Lower-wage workers saw bigger pay gains over the past year than the highest earners, reversing the trend from earlier stages of the recovery, according to economists at RBS Securities...
low, wage, worker, gains, report
Monday, 24 November 2014 05:58 AM
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