Looking at American wage data, it is not hard to see why spending is falling across the board. The Commerce Department also reported that incomes were flat in October, rising less than 0.1 percent. However, the longer-term trend is even more worrisome for American households. Average hourly earnings at private employers have dropped almost every month on an inflation-adjusted basis since February 2011, according to Bloomberg and data from the Labor Department. The only exception was July, when real wages were flat.
Pavilion Global Markets, a global investment services firm, explains in a report that “consumers will spend more only if they feel richer,” and real earnings might decline until unemployment falls below 6.0 percent. This is a sobering statement, as the headline unemployment rate has not been below 6.0 percent since 2008.
The recent economic reports on the state of consumers have caused many firms to downgrade their outlook for the fourth quarter. Macroeconomic Advisers and Barclays Bank (NYSE:BCS) reduced their GDP estimates to 1.1 percent and 1.8 percent, respectively. Meanwhile, JPMorgan Chase (NYSE:JPM) reduced its forecast to 1.5 percent, down from 2.0 percent. Fiscal cliff plunging or not, the economy and American households are in for a rough ride.
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