A Closer Look at Wages

I mentioned the other day that headline inflation has been greater than the growth in wages, so "real" wages have fallen. I'm gratified somebody reads this stuff -- there was a request to be more specific. Hourly private wages were up 3.4% in the 12 months ended July. Consumer headline inflation rose 5.6% during that same time, so "real" wages fell by the difference, or 2.2%.

Falling real wages in an election year makes for angst among the political class. But for the inflation outlook, a wage-price spiral is necessary to cause concern. Without rising wages, there can be no spiral. A spiral would develop if workers concluded higher inflation was here to stay and "inflation expectations" (which the Fed watches closely) rose and higher wage demands resulted. But with rising unemployment and spare capacity in the system, higher wages are not likely.

The list of "problem" banks rose to 117 from 78 in the last report, and the problem assets at those banks were $78 billion against $26 billion in the 78 banks at last report. IndyMac accounts for $32 billion of the $78 billion, and that bank has already gone down the drain. These numbers are not a surprise and are in line with expectations.

During the last financial crisis -- the savings and loan debacle of the late 1980s/early 1990s -- some 1,600 banks in all failed; 1,300 of them were savings banks.

The strength of the dollar is impressive. While interest rate differences between countries will influence exchange rates in the short run, one of the primary determinants of currency valuation is the relative difference between nations' long-term economic outlooks. If you had to observe from the balcony, the recent action of the dollar would be indicating that the outlook for the U.S. is improving relative to that of the eurozone.

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Vincent Farrell Jr. is chief investment officer for Soleil Securities Group and a regular guest on CNBC and other national print and broadcast media.

Prior to joining Soleil in August 2008, Farrell was a principal of Scotsman Capital Management. Before that, he was chairman of Victory Capital Management of Cleveland and chairman of Victory SBSF Capital Management in New York. He was a founding partner of Spears Benzak Salomon & Farrell, which was acquired by KeyCorp in 1995. Vince held a variety of positions in his 23 years at SBSF, including chief investment officer, and he served as the portfolio manager on a number of the firm's largest client relationships.

Prior to joining SBSF, Vince spent nine years at Smith Barney as a vice president, sales.

Vince graduated from Princeton University in 1969 and received his MBA from the Iona College Graduate School of Business in 1972.