Serious Implications

The Stagflation Index is down slightly for Q1

The Stagflation Index (SFI) was down -21 for March, after showing modest gains in January and February. The cumulative SFI for the year thus far is -3, essentially flat. This represents a slight decrease in consumer spending power for the first quarter of 2010 with Real Average Hourly Earnings falling by 0.03 percent.

During the same three-month period, the S&P 500 rose 4.9 percent.

The key March 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.

Consumer Price Index (CPI) +0.1%
Average Hourly Earnings (AHE) -$0.02 or -0.11%
Average Hourly Wage $18.90/hour

Calculating the March decrease in wages adjusted for inflation:
(AHE – CPI) = (-0.11 – 0.10) = -0.21
March SFI = -0.21 X 100 = -21

While stocks are doing well, wages remain essentially stagnant. Health care costs and gasoline continue to rise. Companies need to start hiring again and wages need to rise. Under the current circumstances it’s hard to envision much of an economic recovery this year.

We’ll see about that.

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.

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.

(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.

The August Simplified Stagflation Index (SFI) was 54, up from -47 in July, an improvement of 101 points. This was good news for those who hung onto their jobs.

The August 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) +$0.08 or +0.44%
Average Hourly Wage $18.14/hour

Calculating August percent increase in earnings adjusted for inflation:
AHE – CPI = 0.44 -(-0.1) = 0.54.
August Simplified Stagflation Index = 0.54 X 100 = 54.
12-Month Cumulative SFI = -155.

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 1.55 percent over the past 12 months. Only three of the past twelve months have seen positive SFI values.

“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.

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

Update and Correction:
Due to a mixup in units, the original post below turns out wrong. The Bureau of Labor Statistics lists the CPI as a percent, while expressing the change in Average Hourly Earnings as US currency ($). The data for June is as follows:

June CPI +0.2 %
June AHE $0.08
June AHE +0.42 percent

Therefore, Real Average Hourly Earnings rose (0.42-0.2) = 0.22%, which is good news.
Sorry for the error.

More at Simplified Stagflation Index.