Continuing from yesterday’s post, more on US employment.
Average hourly earnings in the US have been beating inflation for over 10 years - see chart below, earnings in blue, CPI in red. (Yes, “average” is a dirty word but let’s ignore it for now.)
Since 2020, however, inflation has increased faster than earnings: the slope of the red line is steeper than the blue line.
Average Earnings And CPI (Index 6/2006=100)
How much faster? Transforming the data into annual percent changes we get the chart below.
Average Earnings And CPI (Annual Percent Changes)
Inflation is at 8.6% but earnings are lagging behind at only 5.1%, ie working people are losing a very substantial 3.5% of their purchasing power. This is the worst real earnings performance since at least 2006 - and it can’t last much longer. Unless inflation drops well below 5% immediately, workers will demand sharply higher wages to make up for their losses, particularly since the labor market is still very strong.
Back to averages: US inflation is 8.6% on average. But as I’ve pointed out before, inflation on consumer essentials like housing, energy, food and transportation is much higher at 11+%. These expenses make up nearly 100% of expenses for low to lower-middle income households, precisely those that will very soon be demanding hefty pay raises. We already see strikes in Europe and unionization drives in the US, in sectors like airlines, retail and leisure services.
Reports coming from large retailers point to a sudden collapse in consumer demand for non-essential items like electronics and clothing, to compensate for higher expenses for gas, food and housing. Looks to me like a repeat of the 1970s stagflation, but with a twist: this time the labor market is super tight and can drive wages higher, even under slower economic conditions.
Result: lower business earnings. The downturn in the business cycle is still in its early stages, I’d say.
Throw a provocative comment out there. =)
ReplyDeleteI was thinking what Bismark would say about U.S. policy in Ukraine... From a real-politic view point, the U.S. has just made an enemy of the worlds largest country, in exchange for an alliance of dubious value with Ukraine.
I understand that the U.S. is rich and powerful; thus, it can afford to make ideology based choices... but still, in the end, it boils down to food on the table...
The U.S. has so many enemies now... both the world's largest country by size; and the world's largest country by population... together with Iran, North Korea, Syria, Afghanistan... Together, its enemies control much of the world's natural resources and much of the world's industrial capacity. For allies, the U.S. has the anemic economies of Europe and Australia, (Japan?)...
Consider what would happen if some of the currently neutral countries join the growing list of U.S. enemies... think South-East Asia,... India,... Pakistan... I know that real-politic is not in fashion... but still...
I believe that realpolitik has always been "in fashion". You are absolutely correct: the biggest and most populous countries on Earth respectively are now aligned (and perhaps allied) against the US. Is this the end of America's sole global supremacy? Obviously, it is. The question is, how will the US handle its diminishment? Is it willing to "share the world", or will it lash out aggressively? There is something else: the dollar's global reserve status, backed by its petroleum/fossil fuel peg, is going to diminish as the world moves to renewable energy sources. Russia's heavy-handed natural gas policy is only going to accelerate the switch to "green" energy, in Europe and China at the very least.
DeleteI am thinking about it as a network... the strength of the network grows exponentially as the number of nodes increase... problem is the reverse is also true.... and that means that as more countries leave the U.S. system, the ability of the U.S. to reward allies and punish enemies declines... and more countries will then leave...
DeleteFor example, Russia could only leave because China left... and with both China and Russia out, the U.S. no longer has clout to force others to follow its will... look at the arrogance of India with respect to sanctions... or to use a hypothetical example... if France were to try to reestablish its African colonies, what could the U.S. actually do?
I think this is the end of Pax America... the world is going into a free-for-all. Russia was only the first...
India.. very good point... it has obviously made its choice aligning itself with Russia and China. I'm actually really "scared" of India: the second most populous country and very poor, looking to raise its living standards just like China did. Will it give a fig about climate change? No, I'm sure it won't. And then there is Africa.... The West needs to embrace a zero growth economic paradigm ASAP, if Earth as a human habitat is to survive...
DeleteAs for having Syria as a friend? Under Assad? That notion is now laughable. Assad is evil incarnate. Dictators like that threaten the very existence of what made the West what it is today.
Deleteto hell:
Deleteyup... never thought of the environmental angle... much of today's discussion assumes that if the west can get its act together, it has sufficient clout to push through the necessary reforms... that assumption seems increasingly dubious...
It's just that Russian fascists aren't a credible negotiation partner, Putin only understands force. If the US did nothing about Ukraine, Putin would only be empowered further, both militarily and economically in order to further challenge the US.
ReplyDeleteAs for China, they might produce the goods, but they sure need the West to purchase them as well.
The idea of realpolitik is that only force matters. I don't agree with it. However, to be effective, any rule based system must be backed by force. Hence policeman. =)
DeleteWhat worries me is that the force underlying the global rule based order is weakening.
True, Russia would never be an ally; but it could have remained a member of the international community. It is just as interested in containing China as the U.S.
What the U.S. should have done is to let Russia win in Ukraine. Keep Putin on board. And use the aggression to strengthen NATO and shift more of the defence spending onto its NATO allies. Cynical? Definitely... Necessary?... I think so.... I hope I am wrong...
AKOC/Camabron.. on Russia-Ukraine.. The West cannot allow Putin/Russia to roll all over Ukraine without a fight.. Nevertheless, the West will very, very likely lose the fight because Putin is using energy and food as a sort of "nuclear" weapon, particularly against Europe. He can wait until "hell freezes over" (pun intended :)), since China and India are buying his oil and gas.
DeleteThe ONLY way to win is to say to Putin:
"You know what? We will suffer through the cold winter by sharply curtailing our non-essential expenses, we will stop buying phones, cars, vacations, clothes, we will lower our thermostats, we will make do with a 1970s lifestyle. We will cut our fossil fuel dependence by 30-50% and our dependence on Russian oil and gas to ZERO. We will take your nuclear weapon and completely defuse it. THEN what will you do?"
Does Europe and the US want to win? That's the ONLY way.
Russia rolled over Georgia. It was no big deal. Georgia was not part of the EU, was not part of NATO. It's Putin's backyard. His house, his rules.
DeleteUkraine is only a big deal because Biden made a big deal about it.... But given that he has... I agree with Hell... If the U.S. wants to maintain its status, it is now basically committed to regime change... sighz...
...but India and China are paying half the market price to Putin. So he isn't getting the full amount.
DeleteAkoc, Ukraine, or any country's sovereignty, is a big deal and cannot be simply handed over to a fascist dictator. Ukraine produces vast amounts of commodities which cannot be under Russian hands and be used as blackmail. Ukraine is a very big deal indeed.
Hell's, or Europe could return to the nuclear energy option fully... though that will take time.
true in theory... but in practice we have to pick our fights... (don't see anyone saying anything about Armenia-Azerbaijan or Russia-Georgia)... I agree with you that Ukraine is more important than Georgia.... but important enough to sacrifice the U.S. Geo-strategic position?
DeleteI agree Russia and China are paying a price.... but contrary to the triumphalist news stories I am hearing, I am not sure they are actually loosing... if another major country flips, this can turn into a strategic triumph for Putin.... not likely?... yup, I agree.. but it is no longer impossible....