Personal income and spending continued rising at a moderate pace last month, the U.S. Bureau of Economic Analysis reports. Disposable personal income rose by 0.3% for the second consecutive month and personal consumption expenditures gained 0.4%, logging the fifth straight month of higher spending. The revival in economic growth that the bond and stock markets have been anticipating in recent months was confirmed once more with a fresh batch of data. Good news, to be sure, but is there also a glimpse of the new normal in the data?
As always, there’s value in stepping back and looking at the rolling 12-month percentage change. By that benchmark, the spending and income renaissance in the wake of the recession’s end in June 2009 seems to have hit a ceiling at roughly 4% annual growth. That’s hardly fatal, although it falls well short of the rate of increase for the preceding period of economic expansion, offering another sign of how things have changed after the crisis of 2008.
It’s possible, of course, that we’ll see higher rates of growth in the months and years to come. But given what we know about the heavy debt load weighing on household balance sheets, it’s reasonable to wonder if the 4% ceiling will hold for the foreseeable future.
Again, a 3%-to-4% rate of growth in spending and income is far from the end of the world, but keep in mind that we’re talking here of nominal rates of growth. Fortunately, inflation is minimal these days, but that’s not a permanent state of macro affairs. One day, pricing pressure will return. Let's hope that higher rates of income do as well.
Meantime, inflation worries aren’t a priority, nor are the likely to become an imminent threat in the near term. Alas, there’s always something to worry about, and that includes the uncertainty over wages, which are a critical part of assessing the future for the consumer-dependent U.S. economy.
Today’s spending and income report shows that private-sector wage growth posted an advance in November, but the 0.1% rise was the slowest since June’s slight decline. The rolling 12-month percentage change for wages also turned down. For the first time last month in more than a year, the 12-month rate of change was lower than the previous month’s annual pace, as the second chart below shows.
Let’s not make too much of this...yet. Private-sector wages, after all, are still higher by 3.8% vs. a year ago. But once again, the possibility of a 4% ceiling lurks.
Unsurprisingly, the slowdown in wage growth is primarily in the goods-producing sector of the economy, which accounts for around 20% of private-sector wages on an aggregate dollar basis. Last month, goods-producing wages retreated slightly. On a 12-month rolling basis, wage growth is still positive for the goods-producing sector, but it’s weakening. Wages for the much-larger services sector, fortunately, appear to be in better shape in terms of the trend.
It’s hardly news that manufacturing is no longer a robust source of employment for U.S. The question is whether the slow decline in manufacturing employment will infect wage growth. If so, how much trouble that will cause for an economic recovery that generally quite sluggish vs. the historical record?
Part of the answer, or perhaps all of it, lies (still) in the big picture for the labor market. An economy that’s minting new jobs at a healthy clip can smooth over the rough edges of a secular decline in manufacturing wages and employment. That's certainly been true in the past. But the outlook remains mixed on job growth overall.
On the one hand, the falling trend in new jobless claims is encouraging. Indeed, today’s weekly update brings word of another decline in new fillings for unemployment benefits to near the lowest levels in more than two years. That suggests the labor market will continue to recover.
Unfortunately, there was little sign of recovery in the disappointing news in the November employment update. Maybe the December update will bring beter news. Perhaps, although the consensus forecast for December payrolls (scheduled for release on January 7) calls for a modest gain of 100,000, according to Briefing.com. That would be a step up from November's paltry gains, but no one will confuse a 100,000 net rise in payrolls as a game changer.
It’s still all about jobs, and it’s still all about wondering if there’s a dependable recovery underway in the labor market. There are enough clues in recent months to think positively, but it’s not enough to dismiss the potential for expecting trouble. It’s been more or less the same all year, and 2011 is likely to continue the tradition.
This post has been republished from James Picerno's blog, The Capital Spectator.
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