Hourly Compensation of U.S. Employees Declines Most Since 1947

How can consumer spending in the U.S. economy rise under these circumstances…

In the first quarter of 2013, hourly compensation of Americans employed in non-farm businesses fell 3.8%. This was the biggest drop since the Bureau of Labor Statistic started to measure this statistic in 1947. (Source: Bureau of Labor Statistics, June 5, 2013.)

Consumer spending is not rising as one would expect in a real economic recovery. In fact, real personal consumption expenditures (excluding food and energy) adjusted for price changes rose less than one percent in the first four months of 2013! (Source: Federal Reserve Bank of St. Louis web site, last accessed June 6, 2013.)

And inventories of businesses in the U.S. economy also paint a grim picture of consumer spending. In March, manufacturing and trade inventories stood at $1.64 trillion, up five percent from March 2012. (Source: Ibid.) In an improving economy, like the one that the majority of media outlets and politicians tell us we are in, business inventories are supposed to decline—not rise!

No, businesses building up inventories are not a good sign.

But in spite of the pressures on consumer spending, the stock prices of companies in the consumer “discretionary” sector—that’s businesses that sell nonessential goods—continue to rise.

Take a look at the chart below of the Consumer Discretionary Select Sector SPDR (NYSEArca/XLY) exchange-traded fund (ETF) to get an idea of what’s happened to the stock prices of companies that sell discretionary nonessential items to consumers.

Hourly Compensation of U.S. Employees Declines Most Since 1947 image XLY Consumer Discretionary Select Sector SPDR NYSE ChartHourly Compensation of U.S. Employees Declines Most Since 1947

Chart courtesy of www.StockCharts.com

Let’s call a spade a spade: the above chart is not an indication that consumer spending is rising. It’s a chart that simply shows that the stock prices of companies that sell consumers nonessential items are rising because investors are bidding up these stocks.

Don’t let the stock market falsely tell you consumer spending in the U.S. economy is improving and that businesses are doing great, because that’s simply not the case! The reality is that the opposite is happening.

Looking at the health of the U.S. economy, it is very, very weak. This is the weakest economic recovery following a recession I have ever lived through—I believe many Americans would agree with me.

Spending by U.S. consumers makes up more than two-thirds of the U.S. gross domestic product (GDP). If consumer spending isn’t increasing, we can’t have a real economic recovery; it’s that simple, regardless of what rising stock prices may allude to.

What He Said:

“For the economy the message from retail stocks is quite clear: Consumer spending, which accounts for roughly 70% of U.S. GDP, is in jeopardy. After having spent like ‘drunkards’ during the real estate boom years, consumer spending is taking the same trend as housing prices, slowing down faster than most analysts and economists had predicted. As news of the recession continues to make headlines in the popular media, the psychological spending mood of consumers will continue to deteriorate, lowering earnings at most high-end retailers and bringing their stock prices down even further.” Michael Lombardi in Profit Confidential, January 28, 2008. According to the Dow Jones Retail Index, retail stocks fell 39% from January 2008 through November 2008.

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