Growing paychecks boost Americans’ purchasing power

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.”

Bloomberg News

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