The recovery is going just fine for corporate profits. Aided by efforts to get more production from labour spending, U.S. companies banked $1.7 trillion in profits for the first three months of 2011, or 1.3 per cent higher than the previous quarter. That could be a good sign for the broader economy if companies use that money to hire workers or purchase capital equipment. If they move more toward reinvesting those profits outside the United States, though, ordinary Americans may not end up sharing the wealth.
The increase in total private-sector wages, adjusted for inflation, from the start of 2001 has fallen far short of any 10-year period since World War II, according to Commerce Department data. In fact, if the data are to be believed, economywide wage gains have even lagged those in the decade of the Great Depression (adjusted for deflation).
Two years into the recovery and 10 years after the nation fell into a post-dot-com bubble recession, this legacy of near-stagnant wages has helped ground the economy despite unprecedented fiscal and monetary stimulus — and even an impressive bull market.
Over the past decade, real private-sector wage growth has scraped bottom at 4%, just below the 5% increase from 1929 to 1939, government data show.
To put that in perspective, since the Great Depression, 10-year gains in real private wages had always exceeded 25% with one exception: the period ended in 1982-83 when the jobless rate spiked above 10% and wage gains briefly decelerated to 16%.
There are several culprits, of which by far the biggest has been the net loss of 2.7 million private nonfarm jobs since March 2001. (Government payrolls rose by 1.2 million over that span.)
That excess supply of labour has given employers the upper hand in holding back wage gains.
Employers pulled back sharply on job creation in May, and the unemployment rate took a surprising jump, according to new data Friday, confirming worries that the economy is losing momentum — and fast.
Employers added only 54,000 jobs in May, down from a revised 232,000 in April, the Labor Department said Friday morning. The unemployment rate rose to 9.1 per cent last month, from 9 per cent.
Andrew Sum & Joseph McLaughlin, “How the U.S. Economic Output Recession of 2007-2009 Led to the Great Recession in Labor Markets,” Center for Labor Market Studies (Jul. 2010):
Profits up. Productivity up. Wages down. Job creation down.
That’s all you need to know.