GDP Up, Wages Stagnant

As expected, GDP was up nearly 5% in Q1 2006 — the 4.8% rise comes on top of the "tepid" 1.7% gain in Q4.

Once again, many people wrongly reach concIusions from a single data point: With the aftermath of Katrina and Rita disruptions, the loss of shipping down the Mississippi, and the shutting down of refineries and off-shore platforms, the hurricanes and loss of New Orleans was the specific cause of the 2005 Q4 number.

Similarly, the pushing forward of production and consumption from Q4 into Q1 explains the big pop in Q1. If you want to know what GDP is actually, use some common sense and average the 2 quarters:  GDP is growing about 3.25%. Same for durable goods: It spiked at a 20.6% pace in Q1 versus plummetting at a 16.6% rate in Q4 ’05. 

You should not need a Ph.D in Applied Mathematics to figure out what happened.

In a apparent surprise to economists — but no surprise to readers of this blog — wages were flat. As previously noted, there is inflation in everything but wages.

The WSJ noted:

"Despite the robust economic growth, a separate Labor Department report showed that compensation costs for employers rose only 0.6% in the first quarter — the slowest quarterly gain in nearly seven years — following a 0.8% gain in the fourth quarter.

Wages and salary growth was unchanged at 0.7% in the first quarter, and only 2.7% higher than a year ago. That came as a surprise to many economists as prevailing conditions suggest workers are in a better position to bargain for higher pay."

It was a surprise only to those model driven economists who do not have a way to validate their abstractions in the real world. Indeed, unless your skillset is very specific and highly quantifiable, your wage were flat. In Real terms, i.e., adjusted for CPI inflation — they were slightly negative.

For the reality-based dwellers of the real world, put aside the CPI measured inflation fiction and consider actual cost of living increases: your purchasing power was down between 5 – 10%.



Economy Leaps, but Wages Stagnate
GDP Increases by 4.8% In Biggest Rise Since 2003; Growth in Salaries Is Flat
WSJ, April 29, 2006; Page A3

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