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Where's My Stinking Raise?

Friday, July 31, 2015
Money and Markets
YOUR BEST SOURCE FOR THE UNBIASED MARKET COMMENTARY YOU WON’T GET FROM WALL STREET
You can also access this issue on our website.
Hey -- Where's My Stinking Raise?
Market Roundup
Dow -55.52 to 17,690.46
S&P -4.71 to 2,103.92
NASDAQ -0.50 to 5,128.28
10-YR Yield -0.063 to 2.205%
Gold +$5.80 to $1,094.30
Oil -$1.69 to $46.84

By Mike Larson

That’s what American workers are asking these days – and they’re not getting any good answers. I say that because the latest figures show wages and salaries are stagnating like never before.

The Labor Department reported this morning that worker pay rose a pathetic 0.2% in the second quarter. Not only was that down from a 0.7% rise in the prior quarter … and far below the 0.6% estimate … but it was also the worst in recorded U.S. history. The department began tracking in 1982.

If you exclude government employees, the news is even worse. Private wages were essentially unchanged – the first time ever that they didn’t rise at least a bit in a given quarter.

Average hourly earnings figures contained in separate monthly reports on the job market have also been disappointing, as I’ve noted before. They were recently up only about 2% year-over-year, far below the robust gains seen in past economic recoveries.

Is the problem lackluster growth in the economy overall, a trend underscored by yesterday’s GDP report?

Companies are scrimping on raises for workers.

Are problems in Europe or China, and the corresponding impact of the rising U.S. dollar, holding us back? That’s one view I’ve talked about and tend to agree with.

Or is it increased regulation, or the higher health-care costs that employers are confronting? Too-free trade with foreign countries? That’s what still more pundits argue.

Regardless of what’s causing wages to stagnate, the effect is to depress consumer spending and economic growth. That, in turn, is one likely reason the market has stalled out so far this year. So until we see some improvement in core wage growth, I plan to continue erring on the side of increased caution with investing strategy – and you may want to do the same.

Now, let me hear from you. Are you seeing your own wages stagnate, and if so, is that a fairly new development? What about your friends and family? Should Washington change policy to improve the outlook, and if so, what specifically do you think would help? Here’s the link to the Money and Markets website where you can add to the discussion.

Our Readers Speak

Speaking of the economy and the Federal Reserve’s potential responses to it, Reader Frebon said: “The Fed is the problem. Until they get it that ridiculously low interest rates take money out of the hands of seniors and the middle class, who are the only ones who spend it, it limits demand.

“If they want to get the economy moving, raise rates, not lower them. The banks will benefit and won’t have to make their money with riskier plays, and the corporations won’t be able to borrow on the cheap to buy back stock or invest overseas.

“We haven’t had a president who says what he means and means what he says (even though it might not be politically correct) since Reagan. Maybe it is time for Trump.”

Reader Todd S. added this take on why we keep getting underwhelming growth and wage figures:

“The answer lies in what we have done with the American laborer and American consumer. Consumption, the general view goes, drives 70% of the economy, and with literally millions of jobs being moved outside of the country since the early 1990s, that big engine is out of fuel.

“Nearly 1/3 of full-time American workers now annually earn a wage no higher than poverty-level earnings for a small family. 43% of U.S. workers are earning $30,000 a year or less. The workforce participation rate is at a low not seen during the lifetime of many American adults now.

“The people hit hardest by this have also had to bear the dot-com bust, the economic impact of 9/11, and the 2008 housing crash. They are depleted and exhausted, and GDP is not going to show sustained growth until they are restored.”

As for what policies and politicians might make a difference, some weighed in on the latest poll results – and debated whether Donald Trump was a serious option.

Reader Bill said: “In reference to Donald Trump for president, I, for one, would never vote for him. He and/or his companies have filed for bankruptcy numerous times to wipe out their debts. Would he file for Bankruptcy for the U.S.A. also?”

But Reader Donnie S. said in response that “Maybe somebody should have filed an American Chapter 11 bankruptcy many years ago when it was possible, because America has been monetarily, ethically, morally, and spiritually bankrupt for quite a few years.

“Trump has only filed for Chapter 11 bankruptcy, which is a very smart move, to achieve better/favorable financing terms for businesses and individuals. If America had decent and intelligent leaders rather than the curse of the present administration and Congress, we might not be beyond hope as we are presently.”

Still, Reader Brooks cited other reasons for why Trump wouldn’t make a good leader. His view: “Trump is used to buying his way. He is used to being a dictator of all he surveys. I can’t imagine him understanding the concept of dealing with Congress. I can see him offending every other leader on the planet. He is like a loose cannon.”

Thank you for the well-thought-out, well-argued opinions. Clearly, something is wrong in this country when all you’re getting is 2% growth in GDP and 2% growth in wages several years into a supposed economic recovery. And even those targets aren’t being met consistently, as the latest GDP revisions and wage figures show.

So what’s it going to take to get back on track? Is Trump the guy with the best answers? Someone else in the current Republican or Democratic field? I want to hear from you if you haven’t already weighed in, so please make sure you take a few minutes to hit up the website and share.

Other Developments of the Day

BulletBig Oil earnings were disappointing today (not that it should be a surprise to anyone). Profit tanked 52% to $4.19 billion, or $1 a share, at Exxon Mobil (XOM) from $8.78 billion, or $2.05 a share, in the year-earlier period. Earnings slumped thanks to weakness in its exploration and production operations, even as its refining and chemicals businesses performed well.

For its part, Chevron (CVX) reported its worst quarterly profit in 12 years. Earnings slumped to $571 million, or 30 cents per share, from $5.67 billion, or $2.98 per share, in the year-earlier period.

Both companies are slashing spending and firing workers in response – actions that will ultimately contribute to future improvement in the supply/demand balance in the energy markets. So it’s why I have no intention of giving up on the sector, which is as dirt cheap as it’s been in three decades.

BulletLinkedIn Corp. (LNKD) was another earnings loser in the social media business, dropping more than $20 at one point. The problem? Lackluster forward guidance on revenue growth, display ad sales weakness, and concern about its core job networking operations.

BulletIt’s official: The 2022 Winter Olympics will be held in Beijing. Of course, it’s not like countries other than China were beating down the door to host them. Its only competitor was Kazakhstan.

So what do you think about the problems befalling Big Oil? The latest meltdown in social media stocks? China’s hosting of yet another Olympics (after the 2008 summer games)? Here’s the link where you can weigh in.

Until next time,

Mike Larson

Mike Larson
Mike Larson graduated from Boston University with a B.S. degree in Journalism and a B.A. degree in English in 1998, and went to work for Bankrate.com. There, he learned the mortgage and interest rates markets inside and out. Mike then joined Weiss Research in 2001. He is the editor of Safe Money Report. He is often quoted by the Washington Post, Reuters, Dow Jones Newswires, Orlando Sentinel, Palm Beach Post and Sun-Sentinel, and he has appeared on CNN, Bloomberg Television and CNBC.
The investment strategy and opinions expressed in this article are those of the author's and do not necessarily reflect those of any other editor at Weiss Research or the company as a whole.

For more information and archived issues, visit www.moneyandmarkets.com.

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