US worker incomes fall in July as prices and jobless claims rise

18 August 2011 22:14  [Source: ICIS news]

WASHINGTON (ICIS)--US workers’ incomes fell 0.1% in July from June, the Labor Department said on Thursday, as a small gain in weekly wages was wiped out by a higher increase in consumer prices.

The department said real average hourly earnings for all US employees rose by 0.4% in July, but that gain “was more than offset by a 0.5% increase in the consumer price index”.

Since reaching its recent peak in October 2010, Americans’ real incomes have declined by 1.3%, the department said in its monthly earnings report.

The 0.5% increase in the consumer price index (CPI) was attributed to pricing gains across all sectors, the department said, but the sharpest advance was in gasoline with a 4.7% jump.

That rebound in gasoline costs offset just more than half of the rare declines for automotive fuels of 2% and 6.8% in May and June, respectively.

Food prices also helped boost the overall CPI gain, increasing by 0.4% in July, after rising 0.2% in June, the department said.

Even with fluctuating fuel and food prices backed out of the overall total, consumer prices rose by 0.2% in July, marking the ninth straight month of increases since the most recent downturn in October last year.

Over the last 12 months the CPI has risen 3.6%, the department said.

The data on declining real incomes and increasing prices suggests that US consumers might rein-in their spending and save more.

The report on eroding consumer incomes came on the same day that the department said the seasonally adjusted number of Americans applying for unemployment compensation rose to 408,000 for the week ended 13 August.

That marked an increase of 9,000 from the prior week’s jobless claims and put the weekly total back above 400,000, a level that economists regard as evidence of a poor performing economy.

In what economists would consider a healthy US economy, weekly jobless claims should be under 375,000.

The three data sets combined – declining hourly incomes, rising prices and increasing unemployment claims – could accelerate a downturn in consumer spending.

Consumer spending, which accounts for as much as 70% of all US economic activity, has been in decline since the end of last year and has helped spur speculation that the nation’s economy could be headed for a new recession.

The troubling news on wages, prices and unemployment helped drive a sharp decline on Wall Street on Thursday.

Paul Hodges studies key influences shaping the chemical industry in Chemicals and the Economy

By: Joe Kamalick
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