They hit hard right here on the primary point I've been making:
the service sector is about to, if it hasn't already started to, experience negative annual real wage growth (a growth rate below that of the rate of inflation). Unless the annual rate of change in service sector wages makes an about face in trajectory somewhere very soon, and we mean very soon, the ultimate "social short squeeze" is about to begin. (*)
Here's the line of thinking. You'll remember that the US savings rate is for all intents and purposes non-existent. Below 2% is close enough to meaningless for us. It's a direct corroboration that households are spending all of their income. (And with the systemic credit build up of the last decade, the characterization "and then some" also comes to mind.) As interest rates, energy prices, and prices of household goods move higher at an annual rate exceeding wage growth, and absent any further personal tax cuts ahead, discretionary consumer spending is going to get squeezed. And squeezed in a big way. Higher energy prices, higher debt service for anyone with variable rate liabilities (and this includes anyone with credit card debt, an adjustable rate mortgage, etc.), accelerating food prices, etc. are a stranglehold on a consumer experiencing negative real wage growth. The macro economic outcome will simply depend on how tight these forces choose to grip. In our minds, this is the real issue of the moment, not some arbitrary monthly adjusted and massaged payroll headcount number.
(*) IMO has already begun, the economy started a stepped slide around Easter. That's why you're seeing this, source Rasmussen:
The Rasmussen Consumer Index lost nearly three points on Tuesday to 110.1. The Index, which measures the economic confidence of American consumers on a daily basis, is down two from a week ago, down eight from a month ago.
rasmussenreports.com |
