Economists keep expecting a big boom in consumer spending. They also expect a huge wage-price spiral. I expect neither. Let’s investigate.

Bright Outlook for Consumers?

Following today’s job’s report, Econoday commented on wages and tight labor conditions.

Tight conditions haven’t yet sparked much pressure in average hourly earnings which did rise a respectable 0.3 percent in the month though the year-on-year rate fell 1 tenth to a very soft 2.5 percent. How long wages can stay quiet given the lack of available labor is an open question.

In February, Jim Glassman, head economist for JPMorgan, forecast a Bright Outlook for Consumers.

Stronger household finances are laying the foundation for a sustained boom in consumer spending. The improving job market has lifted incomes across the board, while shrinking debt burdens and falling energy prices are freeing up disposable income. The stock market’s rally and real estate’s recovery have helped households more than regain the wealth erased by the recession, placing American consumers in a stronger position than ever before. And since consumer spending accounts for nearly 70 percent of American GDP, a sunny outlook for the nation’s consumers could boost overall economic output in 2017.

Congratulations!

Today’s job report shows average hourly earnings of production and nonsupervisory workers are $21.96 vs $21.46 a year ago.

For my take please see April Payrolls Bounce, Revisions Take March Lower: Hiring Increasingly Volatile.

Think you are you getting ahead?

Less Than 0% Real Wage Growth

Pack of Liars at the Fed

The pack of liars at the Fed and the pack of charlatans in mainstream media all want you to believe there is a benefit to inflation. There is no benefit except to the banks, the bondholders, the already wealthy, and those who feed off the system like public unions and politicians.

The above graph is far worse than it appears because the BLS does not include home prices in the CPI. The BLS also does product substitution. Price inflation is way understated.

To achieve that price inflation, the Fed went rampant with monetary inflation including QE.

Fed chair Janet Yellen rails against income inequality but she needs to look in the mirror. The Fed is the primary sponsor of income inequality was well as a primary reason for price inflation.

Inflation Challenge

In central banks’ seriously misguided attempts to fight routine consumer price deflation, central bankers create very destructive asset bubbles that eventually collapse.

When bubbles burst, they trigger debt deflation, which is what central banks ought to fear.

The BIS did a study and found routine deflation was not any problem at all.

Deflation may actually boost output. Lower prices increase real incomes and wealth. And they may also make export goods more competitive,” stated the BIS study.

For a discussion of the BIS study, please see Historical Perspective on CPI Deflations: How Damaging are They?

My Challenge to Keynesians “Prove Rising Prices Provide an Overall Economic Benefit” has gone unanswered.

Keynesians and Monetarists have no answer because history and logic prove that concerns over consumer price deflation are seriously misplaced.

Mike “Mish” Shedlock