Newsmax TV & Webwww.newsmax.comFREE - In Google Play
Newsmax TV & Webwww.newsmax.comFREE - On the App Store
Tags: Growing | Paychecks | Purchasing | Power

Growing Paychecks Boost Americans’ Purchasing Power

Friday, 10 August 2012 12:05 PM EDT

Americans’ paychecks in the first half of 2012 grew at the fastest pace in five years, pointing to an improvement in purchasing power that may help propel the economic expansion.

Wages and salaries for all employees increased at a 4.8 percent annual pace from January through June after adjusting for inflation, the most since March 2007, according to calculations by Harm Bandholz, chief economist at UniCredit Group in New York, based on data from the Commerce Department. The pickup contrasts with last week’s Labor Department report that showed the smallest gain in average hourly wages on record.

“What matters to people is the size of the paycheck,” said Stephen Stanley, chief economist at Pierpont Securities LLC in Stamford, Connecticut. “How much money you get in the bank, that’s what I care about.”

The Commerce Department figures take into account the total number of people holding jobs and the length of the workweek, which is what shows up in Americans’ paystubs. The recent gains indicate consumers have the means to boost spending and shield the U.S. from any global slowdown as Europe’s debt crisis lingers and Asia cools.

Stocks declined as worse-than-expected Chinese trade data intensified concern that the global economy is slowing. The Standard & Poor’s 500 Index fell 0.2 percent to 1,399.98 at 10:22 a.m. in New York. Treasury securities climbed, sending the yield on the benchmark 10-year note down to 1.64 percent from 1.69 percent late yesterday.

Global Slowdown

China’s export growth collapsed and imports and new yuan loans trailed estimates in July, the country’s customs bureau reported. Concern about Europe’s debt crisis also grew as French industrial output stagnated in June, the latest sign that the euro area’s second-largest economy may be heading for its first recession in three years.

An increase in hours worked in the first half of this year and the drop in fuel costs is what gave U.S consumer buying power the additional boost, making up for gains in payrolls that have been too small to reduce unemployment.

The jobless rate climbed to 8.3 percent in July, a five-month high.

Employers took on 896,000 additional workers from January through June, little changed from the 875,000 gain in the final six months of 2011.

Nonetheless, the average workweek for all employees increased by 6 minutes in the first half of the year from the previous six months, which represents 2.6 hours of extra pay for the six-month period. When spread over the 111 million employees on company payrolls who made $23.39 an hour on average, that represents an additional $6.75 billion pumped into the economy.

Inflation Ebbs

Inflation also ebbed. The Commerce Department’s price gauge tied to consumer spending patterns climbed 1.5 percent in the year ended June after rising 2.6 percent in 2011.

“By most measures, real incomes look better over the past several months,” said Dean Maki, chief U.S. economist in New York for Barclays Plc, referring to the inflation-adjusted figures. “We expect that’ll translate into better consumer spending as we move through the year.”

Maki and Stanley agree that because they take total employment gains and the length of the workweek into account, the Commerce Department’s income numbers are broader, more significant, measures of the health of the American consumer. That may help dispel concern raised by Labor Department data released last week.

Hourly earnings for production workers, or non-management staff, climbed 1.3 percent on average in the 12 months through July, the worst performance in figures dating back to 1965, the Labor Department’s jobs report showed. The increase for all workers, which has a shorter history, was 1.7 percent, matching the smallest gain since the series began in 2007.

Purchasing Power

“It is not as bad as people think,” said UniCredit’s Bandholz. “Paychecks are doing better than the payrolls numbers suggest. The slowdown in the labor market hasn’t reduced purchasing power as much as it seems.”

Labor Department hourly earnings data do have a time advantage, being the first income measure released each month as part of the payrolls report. They are at a disadvantage because, as an average measure, they can be weighed down by increases in hiring at lower-paying jobs at the expense of higher earners like construction and factory workers.

“Hourly wage growth is pretty muted but we’re seeing decent income growth mainly because we’ve had reasonable job gains and on top of that there’s been some lengthening of the workweek,” Stanley said.

Adding Shifts

Drew Industries Inc., a White Plains, New York-based supplier of fixtures and parts such as vinyl doors and ramps for recreational vehicles, is among companies adding shifts. It hired 1,000 employees in the last six months to meet demand.

“Typically, we’re running a one-shift operation, or a one- shift operation of 45 or 50 hours, but we’ve run some secondary shifts and even some third shifts at some of our plants with the explosive growth we’ve had,” Jason Lippert, chief executive officer of Drew’s subsidiaries, Lippert Components and Kinro, said on a conference call with analysts on Aug. 2.

How workers are faring will take added significance as the presidential election nears, with President Barack Obama and Republican challenger Mitt Romney each trying to convince voters their policies will best revive the economy.

Barclays’ Maki, a former Federal Reserve economist, also likes to track another labor-income proxy — hourly earnings multiplied by the total hours worked — in making short-term predictions on consumer spending patterns. Longer term, his money is on total wage-and-salary figures.

“If I had to bet on one month or one quarter, then average hourly earnings or the payroll proxy might give the best signal,” Maki said. “But if one wants to look at what’s going to happen over the next year, I’d tend to lean toward the broader measure, wages and salaries.”

© Copyright 2023 Bloomberg News. All rights reserved.

Friday, 10 August 2012 12:05 PM
Newsmax Media, Inc.

Sign up for Newsmax’s Daily Newsletter

Receive breaking news and original analysis - sent right to your inbox.

(Optional for Local News)
Privacy: We never share your email address.
Join the Newsmax Community
Read and Post Comments
Please review Community Guidelines before posting a comment.
Get Newsmax Text Alerts

Newsmax, Moneynews, Newsmax Health, and Independent. American. are registered trademarks of Newsmax Media, Inc. Newsmax TV, and Newsmax World are trademarks of Newsmax Media, Inc.

© Newsmax Media, Inc.
All Rights Reserved
© Newsmax Media, Inc.
All Rights Reserved