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Tuesday, January 13, 2009

Reality Check on the American Economy

Along with the sharp decline in jobs during December, total hours worked plummeted 1.1%, in large part due to a sudden spike upward in the number of workers who want to work full-time but who can only find part-time jobs. Except for an unusual East Coast blizzard in 1996, this was the biggest drop in total hours worked since 1982. And since December saw some of the worst snowstorms to hit the U.S. in decades, it is possible the weather again played a role.

Despite this, hourly wages rose 0.3% in December and were up 3.7% from December 2007. With the Consumer Price Index (CPI) expected to decline by 1.2% in December (data released this Friday), real (or, inflation-adjusted) wages likely increased 1.5%. Moreover, those real wages are likely up 4.8% from a year-ago, the fastest increase since 1972.

In addition, the real purchasing power of workers' cash earnings (total hours multiplied by real hourly earnings) actually increased by about 0.3% in December, putting it about 0.1% ahead of where it was a year ago. In other words, declines in energy prices, as well as some other prices, have roughly offset the damage to consumer purchasing power caused by job cuts and fewer hours for the remaining workforce.

Read it all here.

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