U.S. Workers’ Pay Strained by Mounting Unemployment

U.S. Workers’ Pay Strained by Mounting Unemployment

By Shobhana Chandra

July 2 (Bloomberg) -- Americans’ wages are starting to
buckle under the strain of mounting unemployment, threatening to
erode the consumer spending essential to an economic recovery.

Earnings per hour climbed at a 0.7 percent annual pace on
average over the last three months, the smallest gain since
records began in 1964, figures from the Labor Department showed
today in Washington. Payrolls fell more than anticipated and the
jobless rate rose to a 26-year high, the report indicated.

“When we do get a recovery, it won’t be much of one,”
said Joseph LaVorgna, chief U.S. economist at Deutsche Bank
Securities Inc. in New York. “There’s no bargaining power for
workers. Discretionary income is just cratering, and this will
have a profound effect on the economy.”

Employers are not only being stingy with raises, they are
also cutting back on hours, causing the average weekly paycheck
to drop to $611.49 in June, down 0.5 percent since February. The
squeeze is unlikely to end soon, because there are 14.7 million
workers who have been without a job for an average 24.5 weeks,
the longest since records began in 1948.

“Employers don’t have to pay workers so much because
there’s a queue of people waiting outside to get a job,” said
Heidi Shierholz, an economist at the Economic Policy Institute
in Washington, a research group typically aligned with the labor
movement. “It’s reducing workers’ ability to negotiate higher
wages. We’re looking at a couple of years of really slow wage
growth, possibly even lower than inflation.”

Stocks, Treasuries
Stocks fell and Treasuries rose after the jobs report. The
Standard & Poor’s 500 Index closed down 2.9 percent at 896.42 in
New York. The yield on the 10-year note fell to 3.498 percent at
6 p.m. from 3.538 late yesterday.

Today’s report showed employers cut 467,000 workers from
payrolls last month after a 322,000 decline in May. The jobless
rate jumped to 9.5 percent, the highest since August 1983.
Hourly earnings were up 2.7 percent from June 2008, the smallest
gain since September 2005.
The average workweek for private production and non-
supervisory workers fell to 33 hours, the fewest since records
began in 1964, from 33.1 hours in May.

The U.S. has lost 6.5 million jobs since the recession
began in December 2007, the Labor report showed. All growth in
jobs in the U.S. over the last nine years has now been wiped
out, and the economy currently has fewer jobs than in May 2000,
according to the policy institute.

Newest Hurdle
Stagnant wages are the newest hurdle facing American
households, whose spending accounts for 70 percent of the
economy. As recently as the three months ended in December 2008,
hourly wages were growing at a 4.2 percent annual clip on
average, even as the economy lost almost 1.7 million jobs.

Pay “was the last labor-market indicator to deteriorate in
this recession, and it’ll be the last one to pick up,”
Shierholz said. “That’s a sign of a further drain on
consumption, just what we don’t need right now.”

Industries including manufacturing, wholesalers, retailers,
utilities and leisure and hospitality cut average hourly
earnings last month, today’s report showed.

“Scattered reports of outright wage deflation are becoming
more widespread,” Ian Morris, chief U.S. economist at HSBC
Securities USA Inc. in New York, said in a note to clients.
“Workers appear willing to take the wage cuts, which makes this
recession very unusual.”
Planned Cuts

Gannett Co., the largest U.S. newspaper owner, said it will
cut about 1,400 publishing jobs and decrease wages for broadcast
employees by as much as 6 percent this month. Utility owner
Exelon Corp. said it plans to freeze executive pay, trim annual
and long-term incentives, and slash about 500 jobs.

Tax cuts and Social Security payments under the Obama
administration’s stimulus plan temporarily propped up disposable
incomes in April and May, supporting household purchases.
Consumer spending rose in May as personal incomes climbed 1.4
percent, the most in a year, the Commerce Department reported
last week. Additional gains may be in question once the
government assistance fades.

“The only wage growth we are getting is through government
transfer payments, and that can’t go on,” said Deutsche Bank’s
LaVorgna. “Even that isn’t enough.”

http://www.bloomberg.com/apps/news?pid=20601103&sid=aIj7EU54..7Q

I am sorry to say I have had to shop at Wal-Mart for non-food items, and the dollar stores are getting some of my money. I still can afford the grocery store for meat and fish and the health market for veggies, but you start to wonder how long that can last, as prices seemed to go up during last summer's gas price boom, but have never come down.