Inflation-adjusted wages
Payday cash is being threatened yet again by the economy. This time it’s the wage average that’s wreaking havoc on the economy. New government data indicates recovery is slowed by inflation adjusted wage declines. Since last year, it has fallen 1.6%, the biggest drop since 1990. This presents problems, as cuts in lending combined with fewer jobs means the cash just isn’t there. And spending is just what the government was hoping would push the economy out of its recession.
Despite the recession being over, its aftermath is now what is hampering consumers from returning to old buying patterns. Higher costs of health care, tuition, and daily expenses create strain on families. All are moving quickly above the inflation rate and stretching people’s budgets beyond their limits.
Labor Department checks in
According to the Labor Department, food costs are coming down. They dropped by the largest rate in 50 years. Despite the good news, energy prices grew at a rate that negated any savings from lower grocery prices. For instance, Angie Kimbrel, a homeowner in Birmingham, AL, has endured stress financially since 2007. She is an insurance underwriter who has seen work slow dramatically over the past year. She said, “I haven’t seen anything getting cheaper.” Her biggest money draws are health insurance and gas.
Economists expect inflation to remain low throughout 2010 because that gives the Federal Reserve the ability to keep interest rates low. Their purpose for the low rate is to encourage people to spend and borrow. Inflation is staying low, along with wages, as employers are wary of paying higher salaries. The lack of salary potential is weighing heavily on the minds of consumers who have seen a huge decline in jobs over the past two years. In fact, since 2007, the market seen a loss of 7.2 million jobs and the number of unemployed is up to 15.3 million. The numbers make for a hard dollar for workers making payday cash go very far, even if employed. Kimbrel added, “I don’t like seeing my paychecks now because it’s a reminder of how difficult things are right now.”
The wage problem
Mark Zandi, chief economist at Economy.com, said, “When people are unemployed and wages are weak, household spending is depressed and businesses don’t have any pricing power. This is the reason that inflation is not a problem.” The last time a strong wage gain occurred was back in 1973 when a double-digit inflation occurred due to oil prices reaching highs. Concordantly, unions began to write cost of living wage increases into contracts.
The economy regulates
Payday cash is still not what it used to be and consumers are concerned. The biggest problem is now inflation is playing a role in wage pricing. Legislators are trying to stimulate the economy, but it takes time for things to get moving. Until then, consumers need to be vigilant about their savings and budgeting plans throughout 2010 and closely watch inflation.
