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Wages adjusted for inflation

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%, which is the biggest drop its seen since 1990. This presents problems, as cuts in lending combined with fewer jobs means the cash just isn’t there. 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. Higher costs of health care, tuition, and daily expenses create strain on families. All are moving quickly above the inflation rate and stretching people’s budgets beyond their limits.

What the Labor Department says

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.

Inflation is expected to stay low through 2010 as the Federal Reserve can keep interest rates low. The purpose behind the low rate is to encourage spending and borrowing to resume. Inflation is staying low, along with wages, as employers are wary of paying higher salaries. Lower salary potential weighs heavily on many minds, especially as the number of jobs has declined over the last two years. In fact, since 2007, the market seen a loss of 7.2 million jobs and the number of unemployed 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. This is the reason that inflation is not a problem.” 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. Until then, consumers need to be vigilant about their savings and budgeting plans throughout 2010 and closely watch inflation.