Archive for the ‘simplified stagflation index’ Category
Stagflation Index for 2009
The Stagflation Index (SFI) finished 2009 with a +6 gain for December as wage gains barely stayed ahead of the cost of living.
The key December data from the Bureau of Labor Statistics pertains to non-managerial workers in the private sector, those of us who make up about 80% of the American workforce. The key data:
Consumer Price Index (CPI) +0.1%
Average Hourly Earnings (AHE) +$0.03 or +0.16%
Average Hourly Wage $18.79/hour
Calculating the December increase in wages adjusted for inflation:
(AHE – CPI) = (0.16 – 0.10) = 0.06
December SFI = 0.06 X 100 = 6.
For 2009, the cumulative SFI was -62. Real average hourly earnings, i.e., growth in wages adjusted for inflation was -0.62%. This represents a loss in consumer buying power.
I’m a bit more optimistic about the current economic “recovery,” due to increased manufacturing exports. The last time unemployment was this high was the early 1980s. The recovery that followed that recession happened despite shipping manufacturing jobs overseas. The 1980s recovery was supported by three major factors:
1. The Baby-Boomers” were in their peak earning years, buying houses, minivans, and lots of stuff for the family. They were great consumers. Now they are downsizing.
2. Cheap oil. The Alaskan oil pipeline was completed, North Sea oil wells came on line, and Pemex (Mexican national oil company) pumped at a frenetic pace. Oil prices plummeted to around $10 per barrel. That is not happening now. With the rise of India and China, a sharp drop in oil prices is unlikely. As the economy improves ever so slightly, oil prices are going up, making it tough for the recovery to gain momentum.
3. Growth in defense industries, computer technologies, and financial services during the 1980s put a lot of people to work and earned a lot of money. The financial crises of 2008 caused a lot of layoffs in that sector. It’s hard to see many of them coming back soon.
Now, the Baby-Boomers, faced with plundered 401Ks and badly under-funded retirements, are hanging on to their jobs. Young workers can’t find jobs. High unemployment will keep wages low. Low wages will keep consumer spending low.
Demand for oil will keep prices high. “Drill baby drill” will not lower prices like in 1982. Demand for oil is higher now, supplies are lower. Oil companies don’t want lower prices, anyway.
The only potential technological saviour is green technology and infrastructure. As the oil companies and their surragates fight to maintain the status quo, nations less entrenched in old, dying technologies will develop, patent, and build the renewable energy systems they will eventually sell to the rest of the world that isn’t as “blessed” with vast coal supplies as the United States.
September Stagflation Index Sags
The Stagflation Index (SFI) for September fell to -15 as cost of living increases outpaced wage gains. This bit of bad news for workers comes during a week when the Dow Jones Industrial average broke 10,000 and the price of oil topped $75 per barrel.
The September data from the Bureau of Labor Statistics indicate that wages failed to keep pace with inflation for non-managerial workers in the private sector, those of us who make up about 80% of the American workforce. The key data:
Consumer Price Index (CPI) +0.2%
Average Hourly Earnings (AHE) +$0.01 or +0.05%
Average Hourly Wage $18.67/hour
Calculating the September increase in wages adjusted for inflation:
(AHE – CPI) = (0.05 – 0.2) = -0.15
September Stagflation Index = -0.15 X 100 = -15
I’m not optimistic about the current economic “recovery.” The last time unemployment was this high was the early 1980s. The recovery that followed that recession was supported by three major factors:
1. The Baby-Boomers” were in their peak earning years.
2. Cheap oil. The Alaskan oil pipeline was completed, North Sea oil wells came on line, and Pemex (Mexican national oil company) produced at a frenetic pace. Oil prices plummeted to around $10 per barrel. That is not happening now. As the economy improves ever so slightly, oil prices are going up.
3. Growth in defense industries, computer technologies, and financial services during the 10980s put a lot of people to work and earned a lot of money.
Now, the Baby-Boomers, faced with under-funded retirements, are hanging on to their jobs, making for a very tough job market for young workers. High unemployment will keep wages low. Low wages will keep consumer spending low.
Demand for oil will keep prices high. “Drill baby drill” will not lower prices like in 1982. Demand is higher now, supplies are lower. Oil companies don’t want lower prices, anyway.
The only potential technological saviour is green technology and infrastructure. As the oil companies and their surragates fight to maintain the status quo, nations less entrenched in old, dying technologies will develop, patent, and build the renewable energy systems they will eventually sell to a crumbling and no longer industrialized America.
I hope I’m wrong about all of that. I see what the makers of Harry and Louise did to health care reform in 1993, others, like George Will, who deny the climate change warnings from the scientists at the UN Intergovernmental Panel on Climate Change (IPCC), are doing to energy reform now.
Those of us for sustainability: economic vitality, environmental quality, and equal opportunity, we have to keep hammering. Keep hammering.
March Stagflation Index Turns Positive
(Click on graph for larger image)
The March Stagflation Index (SFI) rose as wage gains outpaced the change in cost of living, which actually fell slightly. This bit of good news ended two months of rising prices and slower wage growth.
The March data from the Bureau of Labor Statistics indicates that wages rose faster than inflation for non-managerial workers in the private sector, who make up about 80% of the American workforce. The key data:
Consumer Price Index (CPI) -0.1%
Average Hourly Earnings (AHE) +$0.04 or +0.22%
Average Hourly Wage $18.50/hour
Calculating the March percent increase in wages adjusted for inflation:
AHE – CPI = 0.22 -(-0.10) = 0.32
March Stagflation Index = 0.32 X 100 = 32
For a fascinating discussion on our “shadow financial system” including reckless banking and commodities deregulation, listen to Michael Greenberger on NPR’s Fresh Air with Terry Gross. Greenberger explains how we got into the current financial collapse.
To date, the Obama Administration has done little to remedy the legal and regulatory problems Greenberger describes.
January Stagflation Index Falls Sharply
January 2009 12-Month Simplified Stagflation Index
The January Simplified Stagflation Index (SFI) dropped sharply as the cost of living outpaced wage gains. This ended several months of steady or falling prices and modest wage growth, yielding positive (blue) SFI indices.
The January data from the Bureau of Labor Statistics indicates that wages rose slower than inflation for non-managerial workers in the private sector, who make up about 80% of the American workforce. The key data:
Consumer Price Index (CPI) 0.3%
Average Hourly Earnings (AHE) +$0.05 or +0.27%
Average Hourly Wage $18.46/hour
Calculating the December percent increase in wages adjusted for inflation:
AHE – CPI = 0.27 -(0.30) = -0.03
January Simplified Stagflation Index = -0.03 X 100 = -3.
For a fascinating discussion on our “shadow economy” including reckless banking and commodities deregulation, listen to Michael Greenberger on NPR’s Fresh Air with Terry Gross. Greenberger explains how we got into the current financial collapse.
Stagflation Index Ends Positive for 2008
Simplified Stagflation Index for 2008
The November and December Simplified Stagflation Index (SFI) jumped due to negative inflation and wage increases. Given all the bad news about unemployment, cuts in factory orders, foreclosures, and bank insolvency, this was some good news for those of us who hung onto our jobs. The positive SFI numbers mean that workers are rebuilding some economic strength to buy, save, and invest after several years of losing it. That sunny thought, however, and hope for economic recovery, requires we continue to keep our jobs and create a lot of new ones.
The December data from the Bureau of Labor Statistics indicates that wages rose faster than inflation for non-managerial workers in the private sector, who make up about 80% of the American workforce. The key data:
Consumer Price Index (CPI) -0.7%
Average Hourly Earnings (AHE) +$0.05 or +0.27%
Average Hourly Wage $18.36/hour
Calculating the December percent increase in wages adjusted for inflation:
AHE – CPI = 0.27 -(-0.7) = 0.97
December Simplified Stagflation Index = 0.97 X 100 = 97.
The 12-Month Cumulative SFI = 317, with big increases coming since August and lower fuel prices. Real estate prices, in general, are also down over that period.
When the experts boil down all the details about the economic crisis, they will likely find three main culprits: (1) rising fuel costs (gas prices over $4 per gallon); (2) banking deregulation leading to the securitization of bad debt; and (3) the Commodities Futures Modernization Act of 2000. The problems we face as a result were preventable.
We could have avoided this mess by getting serious about energy efficiency, redesigning cars to meet higher CAFE standards, and developing renewable energy. We could have avoided the current bank bailout fiasco by keeping intact the banking regulations that separated commercial banks from investment banks. We could have kept commodities prices, including oil, from skyrocketing by requiring sane margin requirements for speculators.
For a fascinating discussion on the banking and commodities deregultion, listen to Michael Greenberger on NPR’s Fresh Air with Terry Gross
Black Friday May Surprise
Among retailers, the day after Thanksgiving is known as “Black Friday.” It’s the day that for so many businesses determines whether or not they finish the year with a profit, that is, “in the black,” or come up short “in the red.” The color terms harken back to the old days when bespectacled bookkeepers wearing green eye visors manually entered debits and credits in neat columns, black ink for credits, red for losses.
It’s not like I’m a real economist so there’s nothing to lose by going out on a limb and making a prediction: tomorrow’s going to be a good day for the stores. I base this on the recent Simplified Stagflation Index.
For the past three months, average hourly earnings have exceeded the rate of inflation. This means that workers have been gaining purchasing power. This is largely due to the bottom falling out of gasoline prices. Whatever the reason, a lot of workers may find they have a few bucks in their pockets and want to shop for bargains.
On the other hand, if business tomorrow is lousy, it may mean that the vast majority of Americans are in such a deep financial hole, any extra money has to go to paying existing debts, probably credit card debts. That would be bad news for Main Street.
Related article: Bargain Hunting Home Buyers
July Stagflation Index – Workers Lose Again
The July Simplified Stagflation Index (SFI) is -47, up from from a revised -82 in June.
The July data from the Bureau of Labor Statistics indicates that inflation rose faster than wages for non-managerial workers in the private sector, who make up about 80% of the American workforce. The key data:
Consumer Price Index (CPI) +0.8%
Average Hourly Earnings (AHE) +$0.06 or +0.33%
Average Hourly Wage $18.06/hour
Calculating July’s increase in earnings adjusted for inflation:
AHE – CPI = 0.33-0.08 = -0.47.
July Simplified Stagflation Index = -0.47 X 100 = -47.
12-Month Cumulative SFI = -192.
The 12-Month Cumulative SFI means that over the past year, prices have risen faster than wages for 80% of the workforce, resulting in less purchasing power and less money to save. It also means real wages have fallen 1.92 percent over the past 12 months. Only three of the past twelve months have seen positive SFI values.
The vast majority of Americans are losing economic ground. They can afford less than they used to. Look for continued economic weakness as consumers lose the economic strength to hold up the rest of economy. Investors might want to plan on a bear market.
“The fundamentals have turned out to be worse than I had thought…My advice would be, don’t take any risk…I underestimated in almost every way how badly economic and financial fundamentals would turn out…Events must now be disturbing to everyone, and I for one am officially scared!”
– Jeremy Grantham, MarketWatch August 29, 2008
There’s more about the Stagflation Index here.
June Stagflation Index Dives Deep
The June Simplified Stagflation Index (SFI) fell to -77, down from a revised -26 in May.
The June data from the Bureau of Labor Statistics indicates that inflation rose much faster than wages for non-managerial workers in the private sector, who make up about 80% of the American workforce. The key data:
Consumer Price Index (CPI) +1.1%
Average Hourly Earnings (AHE) +$0.06 or +0.33%
Average Hourly Wage $18.01/hour
Calculating June’s increase in earnings adjusted for inflation:
AHE – CPI = 0.33-1.10 = -0.77.
June Simplified Stagflation Index = -0.77 X 100 = -77.
12-Month Cumulative SFI = -125.
The 12-Month Cumulative SFI means that over the past year, prices have risen faster than wages for 80% of the workforce, resulting in less purchasing power and less money to save. Only four of the past twelve months have seen positive SFI values.
The vast majority of Americans are becoming less affluent and will need to limit their spending to essential goods and services and forego discretionary spending. This will likely continue to slow the economy until wages catch up with rising costs.
There’s more about the Stagflation Index here.
Related Bloomberg Article: Stagflation, Not Strong Growth, Justifies Pause: Gene Sperling
May Stagflation Index Takes a Dive
The May Simplified Stagflation Index (SFI) fell to -32, down from a revised -9 in April.
The May data from the Bureau of Labor Statistics indicates that inflation rose considerably faster than wages for non-managerial workers in the private sector, which are those who make up about 80% of the American workforce. The key data:
Consumer Price Index (CPI) +0.6%
Average Hourly Earnings (AHE) +$0.05 or +0.28%
Average Hourly Wage $17.94/hour
Calculating May’s increase in earnings adjusted for inflation:
AHE – CPI = 0.28-0.60 = -0.32.
April Simplified Stagflation Index = -0.32 X 100 = -32.
12-Month Cumulative SFI = -44.
The 12-Month Cumulative SFI means that over the past year, prices have risen faster than wages for 80% of the workforce, resulting in less purchasing power and less money to save. Only two of the past nine months have seen positive SFI values.
The vast majority of Americans are becoming less affluent and will need to limit their spending to essential goods and services and forego discretionary spending.
There’s more about the Stagflation Index here.
Related Bloomberg Article: Stagflation, Not Strong Growth, Justifies Pause: Gene Sperling
April Stagflation Index: Workers Losing Ground
The April data from the Bureau of Labor Statistics indicates that inflation rose faster than wages for non-managerial workers in the private sector, which are those who make up about 80% of the American workforce. The key data:
Consumer Price Index (CPI) +0.2%
Average Hourly Earnings (AHE) +$0.01 or +0.06%
Average Hourly Wage $17.88/hour
Calculating April’s increase in earnings adjusted for inflation:
AHE – CPI = 0.06-0.20 = -0.14.
April Simplified Stagflation Index = -0.14 X 100 = -14.
12-Month Cumulative SFI = -38.
The 12-Month Cumulative SFI means that, over the past year, prices have risen faster than wages for 80% of the workforce, resulting in less purchasing power and less money to save. This spells trouble for at least certain sectors of the economy, which will see downward pressure on prices. Falling prices will have a positive feedback on wages, causing them to fall in sectors linked to discretionary spending. It remains to be seen whether or not these changes in the U.S. economy will result in the Democrats retaking the White House with a mandate to rebalance the economy.
There’s more about the Stagflation Index here.
March Stagflation Index Goes Negative
The March data from the Bureau of Labor Statistics indicates that inflation rose faster than wages for non-managerial workers in the private sector, who make up about 80% of the American workforce. The key data:
Consumer Price Index (CPI) +0.3%
Average Hourly Earnings (AHE) +$0.05 or +0.28%
Average Hourly Wage $17.86/hour
Calculating March increase in earnings adjusted for inflation:
AHE – CPI = 0.28-0.30 = -0.02.
March Simplified Stagflation Index = -0.02 X 100 = -2.
There’s more about the Stagflation Index here.
February Stagflation Index Turns Positive
The Simplified Stagflation Index (SFI) rose to +28 in February, which is good news for workers. The gain reflects no change in the Consumer’s Price Index (CPI) coupled with an increase of $0.05 per hour in Average Hourly Earnings (AHE) for non-managerial workers in the private sector. These workers make up about 80 percent of the American labor force.
The 12-month cumulative SFI stands at -36, which means over the past year, real wages, adjusted for inflation, have declined. This reduces workers’ effective buying power and contributes to recession. The graph looks a bit different from previous graphs due to change in vertical scale and government updates to published data for previous months.
The SFI is based on monthly data supplied by the U.S. Bureau of Labor Statistics. To find out how I calculate the SFI, go to this page.
January Stagflation Index Goes Negative
The Simplified Stagflation Index (SFI) fell 27 points from last month to end at -17. This is bad news for non-managerial workers in the private sector, which is about 80-percent of the work force in the United States.
The SFI is derived from the Consumer Price Index and Average Hourly Earnings published monthly by the U.S. Bureau of Labor Statistics
Over the past 12 months, the SFI has been negative eight months and positive four months. Overall, wages have not kept up with prices.
More about the SFI and how I calculate it can be found here.
2007 Stagflation Negative: Production Workers See Real Wages Fall
The Simplified Stagflation Index (SFI) finished 2007 by climbing to +10 in December, a bit of good news and ending a three-month run of negative values. For the year, however, the news is not so good.
Totals for 2007:
Consumer Price Index +4.2 Percent
Average Hourly Earnings +3.7 Percent
Real Average Hourly Earnings (Corrected for Inflation) -0.5 Percent
Simplified Stagflation Index -51.
The SFI is derived from Consumer Price Index and Average Hourly Earnings data published monthly by the U.S. Bureau of Labor Statistics. There is more information about the SFI here
Stagflation Index Sinks in November
Stagflation sank lower in November, down from -13 in October to -34. This amounts to, on average, a pay cut for about 80% of American workers just in time for the holidays. It remains to be seen whether or not shoppers will cut back on spending or rack up more credit card debt.
The Simplified Stagflation Index (SFI) is based on the monthly Consumer Price Index and Average Hourly Earnings published by the U.S. Bureau of Labor Statistics. More about the SFI is available here.
