Inflation-adjusted wages

Payday cash is being threatened yet again by the economy. The wage average is part and parcel to the sluggish economy. New government data indicates recovery is slowed by inflation adjusted wage declines. Over the last year it fell 1.6%, the biggest drop since 1990. This poses a real problem for the economy because coupled with the cutback on lending, and slow job growth, people don’t have the cash needed to fuel into the economy. Spending is exactly what the government thinks will reverse the recession.

Despite the recession being over, its aftermath is now what is hampering consumers from returning to old buying patterns. Many families are struggling with huge health costs, tuition, and daily expenses. They are moving above the inflation rate and stretches budgets almost to the breaking point.

Labor Department checks in

According to the Labor Department, food costs are coming down. They came down at the largest rate in over 50 years. Despite this being good news, the price of energy grew at such a rate that it ate all grocery savings. For example, Angie Kimbrel, middle-class homeowner in Birmingham, Alabama, has been financially stressed since 2007. She is an insurance underwriter who has seen work slow dramatically over the past year. She said, “I haven’t seen anything getting cheaper.” Her largest expenses are typically gas and insurance.

Economists expect inflation to remain low throughout 2010 because that gives the Federal Reserve the ability to keep interest rates low. Their purpose for the low rate is to encourage people to spend and borrow. Inflation is staying low, along with wages, as employers are wary of paying higher salaries. The lack of salary potential is weighing heavily on the minds of consumers who have seen a huge decline in jobs over the past two years. In fact, since 2007, the market seen a loss of 7.2 million jobs and the number of unemployed people is up to 15.3 million. With numbers like that, it’s difficult for consumers to think positively about their payday cash, even if they are employed. Kimbrel added, “I don’t like seeing my paychecks now because it’s a reminder of how difficult things are right now.”

The problem with wages

Mark Zandi, chief economist at Economy.com said, “When people are unemployed and wages are weak, household spending is depressed and businesses don’t have any pricing power. That is why inflation is not a concern.” The last time a strong wage gain occurred was back in 1973 when a double-digit inflation occurred due to oil prices reaching highs. Concordantly, unions began to write cost of living wage increases into contracts.

Nature of the market

Payday cash is still not what it used to be and consumers are concerned. The problem now is inflation is factored into wage pricing. Legislators are trying to stimulate the economy, but it takes time for things to get moving. People have to vigilant about spending and budgeting through 2010 and watch inflation until then.