Inflation-adjusted wages
Payday cash is being threatened yet again by the economy. This time it’s the wage average that’s wreaking havoc on the economy. A new government survey showed that consumer’s economic rebound is being hampered by an inflation-adjusted wage fall. Since last year, it has fallen 1.6%, which is the biggest drop its seen since 1990. This poses a real problem for the economy because coupled with the cutback on lending, and slow job growth, people don’t have the cash needed to fuel into the economy. And spending is just what the government was hoping would push the economy out of its recession.
Despite the recession being over, its aftermath is now what is hampering consumers from returning to old buying patterns. Many families are struggling with huge health costs, tuition, and daily expenses. All are moving quickly above the inflation rate and stretching people’s budgets beyond their limits.
Labor Department checks in
According to the Labor Department, food costs are coming down. They came down at the largest rate in over 50 years. Despite this being good news, the price of energy grew at such a rate that it ate all grocery savings. For example, Angie Kimbrel, middle-class homeowner in Birmingham, Alabama, has been financially stressed since 2007. She is an insurance underwriter who has seen work slow dramatically over the past year. She said, “I haven’t seen anything getting cheaper.” Her biggest money draws are health insurance and gas.
Economists expect inflation to remain low throughout 2010 because that gives the Federal Reserve the ability to keep interest rates low. Their purpose for the low rate is to encourage people to spend and borrow. Inflation is remaining low, as are wages, because most employers are still wary of raising salaries. The lack of salary potential is weighing heavily on the minds of consumers who have seen a huge decline in jobs over the past two years. In fact, since 2007, the market seen a loss of 7.2 million jobs and the number of unemployed is up to 15.3 million. With numbers like that, it’s difficult for consumers to think positively about their payday cash, even if they are employed. Kimbrel added, “I don’t like seeing my paychecks now because it’s a reminder of how difficult things are right now.”
The wage problem
Mark Zandi, chief economist at Economy.com, said, “When people are unemployed and wages are weak, household spending is depressed and businesses don’t have any pricing power. This is the reason that inflation is not a problem.” The last time a strong wage gain occurred was back in 1973 when a double-digit inflation occurred due to oil prices reaching highs. As a result, many unions made the move to negotiate cost-of-living increases into their contracts.
The economy regulates
Payday cash is still not what it used to be and consumers are concerned. The biggest problem is now inflation is playing a role in wage pricing. Legislators are striving to spur the economy back into action, but it will take time for things to regulate. Until then, consumers need to be vigilant about their savings and budgeting plans throughout 2010 and closely watch inflation.
