Retail Sales, Wages, Inventories, and The Growth Illusion

Labor shortages are supposed to be boom times for workers. When businesses have to compete to hire and retain employees, they bid up wages and improve working conditions. Yet many American workers feel like they are falling behind.

Let’s run through some facts. Many businesses say they are having trouble finding workers. In the Philly Fed August survey of manufacturers, 74.4 percent of firms cited the labor shortage as holding back their production, second only to supply chain disruptions. And businesses are raising wages. Compared with a year earlier, the average hourly wage was up 4.3 percent in August.

The reason this doesn’t feel like a winning time is that the economy is experiencing the highest rate of inflation in over a decade. Adjusted for inflation, average hourly wages are down nine-tenths of a percentage point. Average weekly wages are down by the same amount. College-educated workers have seen a 1.1 percent decline in real wages. Prior to the pandemic, hourly workers were seeing a 1.8 percent annual gain, and college-educated workers were seeing a 1.6 percent gain.

A similar dynamic can be seen in economic data released Thursday. The 0.7 percent monthly gain in retail sales falls to 0.4 percent adjusted for inflation. Inventory growth of 0.5 percent falls to 0.2 percent adjusted by the Consumer Price Index. But the CPI is probably not the right measure to adjust business inventories. If we use the Producer Price Index for intermediate demand, a measure of what businesses paid for goods, then it looks as if inventories contracted.

After years of low inflation, analysts appear to have gotten out of the habit of differentiating between nominal and real gains. For a decade or so, they tended to be not much different from each other. But in the current environment, looking at the nominal numbers only can be misleading. The inflation-adjusted numbers tell us wages are falling, inventories are shrinking, and retail sales are sluggish.

No wonder consumer sentiment—and Biden’s approval rating—have fallen so far.

Alex Marlow & John Carney
Breitbart News Network

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