Watching the Economy by Clint Burdett CMC® FIMC
March 1 2015
New Jobs Improving But Average Hourly Earnings Growth Not Enough to Accelerate the Recovery in 2015
Growing Average Hourly Earnings lead substantial increases in Real Personal Consumption Expenditures.
My fundamental equation is jobs created multiplied times average hourly earnings equals the most significant contribution to increase GDP growth through Personal Consumption Expenditures.
To improve GDP growth increase the number of jobs, average hourly earnings or both. New long term jobs have a sustained impact, real average hourly earnings increases more so but with a lag.
In the second half of 2014 local non-farm jobs increased, for which we are all grateful, but wages (Average Hourly Earnings) and expenditures (nominal PCE) should also be rising. In the chart we see it is a very modest rise.
Though we see the US economy as stronger than many others and improving, it is still in the last phase of the recovery before middle class job holders can expect better wages for their work. Raises for many job holders is a powerful driver of demand.
The core problem is 25-40 year old earners are being held back by debt on student loans, very modest wage growth and a tendency to continue their education, so the mulitplier effect on the economy is very modest from the core age group.
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