Wage drop is steepest since 1990; whither the American consumer?

AP reports that  the spending power of American families is being squeezed:

Workers saw their inflation-adjusted weekly wages fall 1.6 percent last year – the sharpest drop since 1990 – even as consumer prices rose only modestly.

No one can accuse Inflation Watch of being complacent about inflation. However, as long as wages continue to stagnate, it seems fairly obvious that inflation on the whole will remain subdued.

The news about declining wages comes even as we’re seeing ample evidence of rising prices for some consumer staples (e.g., food, gas, health insurance, parking, cars, utilities).  In short, U.S. consumers are paying more and earning less.

In the good ol’ days, consumers could sustain their standard of living by simply borrowing more. But credit card companies have been cutting credit limits and home equity loans are no longer available to many homeowners.

In short, the lending spigot has been turned off.

It’s really hard to see how spending by the American consumer is going to hold up if this scenario continues.


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