Wages: Another Anchor Weighing on Consumer Spending

by Adam Benjamin | September 5, 2013 8:36 am

Wages: Another Anchor Weighing on Consumer Spending

Yesterday, Quartz posted a nice little chart to ruin your Labor Day[1], showing the ongoing decline in the value of U.S. labor.

Wages by GDP Wages: Another Anchor Weighing on Consumer Spending[2]

Wages as a percentage of GDP have been on a pretty steep decline since 2001, and recently hit their lowest level since 1947. That’s partially due to wage freezes at companies like Caterpillar (CAT[3]), in addition to increased automation and outsourcing.

The New York Times points out that rising health care costs aren’t to blame, either:

“Overall employee compensation — including health and retirement benefits — has also slipped badly, falling to its lowest share of national income in more than 50 years while corporate profits have climbed to their highest share over that time.”

So what does that mean for consumer spending?

The latest Bloomberg outlook[4] was optimistic, stating that the fundamentals are improving, and spending should increase for the second half of the year. But that outlook is at odds with the data we’re seeing about wages — and with retailers’ outlooks.

Two industry heavyweights, Walmart (WMT[5]) and Macy’s (M[6]), pulled back their full-year estimates. As Alyssa Oursler mentioned a few weeks back, Macy’s weak earnings[7] were a warning sign for the sector, and sales have been slowing across the sector, forcing numerous companies to slash prices and swallow lower margins.

Consumer spending can’t increase if wages keep falling, so both the short-term outlook and the long-term macro trends are working against retail and other businesses.

Adam Benjamin is an Assistant Editor at InvestorPlace. As of this writing, he did not hold a position in any of the aforementioned securities.

Endnotes:
  1. nice little chart to ruin your Labor Day: http://qz.com/120261/two-charts-to-ruin-labor-day-us-labor-is-worth-less-than-ever/
  2. [Image]: http://investorplace.com/wp-content/uploads/2013/09/Wages-by-GDP.png
  3. CAT: http://studio-5.financialcontent.com/investplace/quote?Symbol=CAT
  4. Bloomberg outlook: http://www.bloomberg.com/news/2013-08-30/consumer-spending-in-u-s-increased-in-july-for-a-third-month.html
  5. WMT: http://studio-5.financialcontent.com/investplace/quote?Symbol=WMT
  6. M: http://studio-5.financialcontent.com/investplace/quote?Symbol=M
  7. Macy’s weak earnings: http://investorplace.com/2013/08/macys-earnings-signal-trouble-for-retail-stocks/

Source URL: http://investorplace.com/2013/09/wage-stagnation-will-hurt-consumer-spending-in-q3-and-q4/
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