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Recapturing Lost Purchasing Power?

Posted By Barry Ritholtz On November 5, 2005 @ 10:54 am In Economy,Inflation | Comments Disabled

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 [1] 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 [2]
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


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URLs in this post:

[1] noted: http://bigpicture.typepad.com/comments/2005/11/nfp_payroll_ups.html

[2] Hiring Was Cautious in October: http://online.wsj.com/article/SB113110978140888386.html

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