This Day On The Street
Continue to site
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Hidden Inflation Slows Growth, Holds Down Wages

NEW YORK ( TheStreet) -- On Thursday, Aug. 29, fast-food chain workers conducted strikes in nearly 60 cities asking that chains like McDonalds (MCD), Burger King (BKW), Wendy's (WEN) and Yum Brands (YUM) (which holds KFC and Taco Bell) boost their minimum hourly pay to $15/hour.

Meanwhile, the saga between Wal-Mart (WMT - Get Report) and the D.C. City Council continues with Mayor Gray having 10 days from Aug. 30 to sign or veto legislation which requires Walmart to pay a minimum wage of $12.50/hour while other employers are only required to pay the D.C. minimum wage of $8.25/hour.

The Income Gap

In 1980, wage earnings as a percent of Gross Domestic Income (GDI, the sister concept to GDP) were 49%. In the last GDI report, they were closer to 42%. Meanwhile, corporate profits are up 50% from about 8% of GDI in 1980 to about 12% today. There is no doubt that the income gap between the rich and the middle class is growing.

The Slide in GDP Growth

The accompanying table shows the compounded annual growth rate (CAGR) of real GDP (as "officially" measured) from the bottom of each of the last four recessions to the following peak.

It is notable that the CAGR of real GDP in today's recovery (2.23%) is about half the pace of the recovery from the recession of the early '80s. Note that in each subsequent cycle since 1982, GDP's CAGR has slid more than 50 basis points.

The 'Official' CPI

In the mid-90s, it was determined that demographics would become an issue regarding the cost of social programs like Social Security and Medicare. So, the CPI formulation was changed so as to slow down the "official" rate of inflation, which, in turn, slowed the cost of the social programs.

But there was also an unintended consequence, one not recognized by any politician or the mainstream media today. Because the "official" CPI is widely accepted as "the" measure of inflation, and because "cost of living" raises for most of middle America are based on it, its manipulation over time has lowered the real incomes of wage earners (the middle class) with the resulting negative impact on the CAGR of real GDP, because if the prices of goods and services are actually rising faster than incomes, then aggregate demand is negatively impacted.
1 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
SYM TRADE IT LAST %CHG
WMT $71.42 -0.97%
AAPL $124.53 -1.75%
FB $85.80 -2.51%
GOOG $521.52 -1.91%
TSLA $262.02 -1.90%

Markets

DOW 17,596.35 -350.33 -1.95%
S&P 500 2,057.64 -43.85 -2.09%
NASDAQ 4,958.4680 -122.0370 -2.40%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs