I don’t have an opinion (either way) on Greg Ip, the WSJ reporter who covers the Fed.

But I have to call this sentence into question:

"Cautious employers put the brakes on hiring in October, producing the second straight month of weak job gains. But workers recaptured some of their lost purchasing power as wages rose at the fastest pace in two years."

I have to take issue with that description; As we have noted repeatedly, REAL Wages and Salaries — i.e., adjusted for inflation — were a negative -2.3% in the third quarter.

Yes, salaries went up on Q3 — but not nearly as fast as prices went up. In other words,  workers LOST additional purchasing power. They didn’t recapture anything.

Anytime the phrase "Purchasing Power" is used, it is referring to REAL wages. I have also seen it used to reference after tax wages (inflation adjusted or not) — but since there wasn’t any change in Tax policy in Q3, this definition is irrelevant to the present discussion.

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Any thoughts on this? Am I missing something here?

Source:
Hiring Was Cautious in October
Job Gains Were Weak,But Workers’ Wages Rose At Fastest Pace in 2 Years
GREG IP
THE WALL STREET JOURNAL, November 5, 2005; Page A3
http://online.wsj.com/article/SB113110978140888386.html

Category: Economy, Inflation

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

8 Responses to “Recapturing Lost Purchasing Power?”

  1. Lord says:

    Misleading at best. That they did not fall behind as much as they could have is hardly recapturing their purchasing power.

  2. RW says:

    I suppose the use of “purchasing power” to mean wages or available income in some everyday sense could be excused in an non-financial publication but if I recall ECON 101 correctly, the meaning of purchasing power in economics is generally restricted to the number of goods a particular unit of currency can be exchanged for – income/wages and cost of living are not independent of each other – so it doesn’t look like you’re missing much to me.

    But then I find a whole host of things, from DRM crippling to national policy, increasingly incomprehensible these days so I’m thinking I may be slower on the uptake than some.

    RW

  3. spencer says:

    Just plain sloppy. Especially for him.

    He probably had the last monthly report on wages in mind, but we do not yet have inflation for the last month. although because of falling oil prices it should be negative, thus generating a big real increase.

  4. Mike Wilmot says:

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    Keep up the good work and take care.
    -Mike Wilmot
    Denver, CO

  5. royce says:

    I had an e-mail exchange with another WSJ reporter on a story involving higher interest rates being good news for savers. I said it’s not really “good” news when interest rates rise along with inflation- it’s just news, and in reality you’re about right back where you were a year ago.

    I give him credit- to my surprise he responded. He said that savers a year ago were getting less than inflation a year ago but now were getting a little more than core inflation, those still less than the CPI. So they really were better off now. I thought, okay. Whatever.

    Point is, reading your post today makes me think the editorial policy over there must closely follow the “core inflation is the only inflation that counts” line.

  6. It is important to keep an eye on “total compensation” rather than wages and salaries, because so much pay is diverted into health coverage today.

    On an annual basis, personal incomes are up 6.3% while total compensation rose at a 6.9% (year on year) during the 3Q05.

  7. Your observation is even more bearish than mine: If even more money is going into health care benefits, while REAL earnings is negative, its even WORSE than I originally discussed.

    Its important to see how the compensation impacts total consumer spending; What Mr. Econotarian points out means that much less coin in consumer hands .

  8. fred c. dobbs says:

    We don’t have CPI for October yet, but it looks to be just about flat. If wages rose 0.5% in October while prices were flat, then it would be true that workers (on average) regained some purchasing power in October. Appeals to year-over-year losses or losses in the third quarter are irrelevant. In fact, the very sentence you are complaining about includes these magic words, “lost purchasing power,” in referring to the recent past.
    In the big picture (which you should stick to, Barry), workers are losing ground almost every month. But not in October (probably).

    Ip wins this round.