Why aren’t I making more money?
It’s a question you’ve probably asked yourself, and it’s
more important now than ever before. After all, home prices are rising. Health-care
costs are soaring. And everything from college costs to groceries seems to get
more expensive every year.
We’ll get fresh data on wages and job growth tomorrow
morning, when the Labor Department releases its latest monthly report for May.
In the meantime, the Wall Street Journal tried to answer the big-picture wage
question by doing a deep dive into the data.
It analyzed the situation on the ground and in the numbers
for metropolitan regions around the country. The goal: Try to explain why wages
aren’t rising at anywhere near their old rates – despite the steep fall in the
“official” unemployment rate.
A major employment report is due Friday. People are finding
jobs, but salaries aren’t necessarily rising.
The Journal’s conclusions:
Too much “hidden” labor supply. That includes temporary
workers who are competing with others for any job they can get, and discouraged
workers who previously dropped off the “available to work” labor rolls – but
are coming back and competing for new positions now.
Too much foreign competition. When companies overseas are
paying workers much less, and able to undercut our companies thanks to the
dollar’s rise, it puts a lid on U.S. wage growth.
The New York Times highlighted an example of that yesterday,
chronicling how Walt Disney (DIS) just laid off hundreds of U.S. IT workers. It
hired an outsourcing firm that uses cheaper foreign labor to do the work, and
even made the U.S. workers train their replacements if they wanted to get a
decent severance package.
Too little productivity and too much of a recession
hangover. These concepts are more nebulous, but it boils down to the fact that
companies believe they aren’t getting enough output from workers to pay much
more. Executives are also afraid to boost pay too much because of fear of a
renewed economic downturn, considering we suffered the worst slump since the
Great Depression only a few years ago.
“What will it take to get us out of this rut?”
All told, the Journal found that unemployment rates in many regions
are now lower than they were before the economy got shot to heck in 2008. But
the 4% or 5% wage increases we saw back then, or in the 1990s, are now more
like increases of 2% to 3% – if that.
What will it take to get us out of this rut? Is there some
kind of policy prescription to jump start things? Politicians are flailing
about, trying to answer those questions. But the proposals announced to date
haven’t done much, including state and local efforts to raise the minimum wage
to well above the federal level.
Ultimately, it may just take the passage of even more time
between the Great Recession and today. Time to replace lost productivity, lost
confidence and lost demand. Not what the average American wants to hear,
unfortunately, but it seems to be our sad reality.
So what do you think? What will get American wage growth
back on track? Any evidence in your own personal experience that lower
unemployment rates are boosting wage and salary increases? Or do you find that
your pay, or the pay of your employees, is continuing to stagnate? Let me know
your views over at the Money and Markets website – because this is a
hugely important issue.
(For more details about tomorrow’s market-moving events and
my expectations, click on the video to watch a special Money and Markets Extra
video update!)
Our Readers Speak
Interest rates are clearly on the rise again – but will it
last? That’s among several issues you were debating over at the website.
Reader Peter B. said: “Interest rates have bottomed long
term, proving again the markets set interest rates and not the Federal Reserve.
The Fed will play catch up in 60 days to 90 days, pretending they control
interest rates.”
Reader Stu agreed, saying: “Losses in the bond market will
continue to mount, albeit with volatility. This will eventually lead to a crash
in the general stock markets. Only at this point will bond yields drop just as
dramatically as they rose.”
But not everyone is on the same page. Reader D. suggested
that economic growth doesn’t support higher rates: “As the U.S. is likely to be
heading into a recession, rates have nowhere to go but down in the next year,
probably reaching lows not seen since 2012, perhaps even lower. The yield curve
will eventually invert, with the Fed in a big struggle with the bond market.”
As for what to do about the increased volatility in bonds,
Reader Kevin suggested an alternative to investing in Treasuries offering lousy
yields:
“So if I have an extra $1,000 burning a hole in my pocket, I
could invest in a 10-year Treasury note and get a 2.4% return … or I could
apply it to my 3.625% mortgage and pay it off sooner. No brainer.”
Thanks for the comments. There’s no doubt we’ve been swept
up in a massive bond bubble, one that started to pop in 2013 before the process
was short-circuited.
Were the negative yields we saw earlier this year the final
straw? Just like the last gasp move in the Nasdaq in the first couple months of
2000? Only time will tell … but I wouldn’t be surprised in the least if that
turned out to be the case!
Be sure to add your thoughts on this or any other topic
we’ve discussed over at the website: www.moneyandmarkets.com.
Other Developments of the Day
Bonds got rocked by another global sell off in the overnight
hours, with the yield on the German benchmark 10-year note hitting 0.99% at one
point. That compares with just a handful of basis points at the lows in April.
It was also the highest since September.
General Electric (GE) is officially launching its great
asset selloff, hiring several banks to help it auction off $60 billion in
lending and leasing businesses. The move is designed to refocus the company
toward industrial operations, and away from financial ones.
Western banks are plenty corrupt, as the investigations and
multi-billion-dollar penalties for manipulating everything from mortgages to
currencies to interest rates demonstrate. But apparently, they have nothing on
the country of Moldova!
The New York Times reports that corrupt bank insiders and
shadowy oligarchs loaned themselves hundreds of millions of dollars for
fraudulent enterprises. They also allegedly shifted money into overseas
accounts, helping drive the country’s top three banks into insolvency and
costing the nation huge amounts of money.
Share your comments over at the website when you have
some time. Until next time, Mike Larson
No comments:
Post a Comment