(Reuters circulated the following story by Pedro Nicolaci da Costa on January 30.)
NEW YORK — U.S. worker salaries are growing much more slowly than inflation, raising concerns about consumers’ ability to repay loans and credit cards bills at a time when borrowing is near all-time highs.
Just as Americans have begun receiving hefty statements for their holiday purchases in the mail, the government reported on Friday that wages rose a meager an 2.5 percent over the past year — the smallest increase on record.
Stacked against a 3.3 percent overall increase in prices for the year, the data paints an ugly picture of debt-burdened, cash-strapped American consumers struggling to make ends meet.
Overall employee compensation is actually climbing considerably, but the bulk of the increase comes from sky-high health care costs.
“The cost of hiring workers is rising but the wage income of workers is not keeping up with inflation,” said Steven Wood, chief economist at Insight Economics. “As workers become more expensive, companies will hire fewer of them.”
So not only are working families being pressured, but those who are unemployed — 8 million of them by conservative estimates — are still having a difficult time finding work.
For those at the low end of the income spectrum, the story only gets worse. The government’s tally of total wage gains masks the fact that lower-paid workers are getting even smaller pay raises than the population as a whole.
Americans making less than $21,000 a year, predominantly minorities in urban centers but also whites in rural towns, actually got paid 1.7 percent less in 2004 than the year before.
This leaves the most vulnerable sector of society wide open to the threat of financial insolvency — a technical term for being dirt broke — as easy credit at loan-shark rates grows unchecked within those communities, analysts said.
“Workers at the middle and the low end are taking more of the brunt of these wage losses,” said Jared Bernstein, senior economist at the Economic Policy Institute.
“It means that any gains in family income for these families has to come from working more hours, and in a labor market that’s not creating new jobs, sometimes those hours are nowhere to be found,” he said.
All this comes at a time when Americans are deeper in debt than ever before. Between credit cards, students loans, auto financing and mortgages, the total debt of American households exceeds $10 trillion dollars. That amounts to well over 90 percent of yearly national economic output.
As wages stay put, Americans have become increasingly reliant on credit cards to fuel their spending. Many homeowners have used their home as an ATM machine, tapping the equity in their property to pay off their debts. The potential consequences are dire, some fear.
“If home values bust, many of these homeowners will be devastated,” argues a report released this month by Demos, a public policy organization.
Meanwhile interest rates are starting to move higher, which will make it all the more difficult for the average Joe to stay on top of his personal balance sheet. A further spike in credit card rates, which are already prohibitively high, might push some financially troubled consumers over the edge.
Not that the overall economy is faring so poorly. During 2004, U.S. gross domestic product — the broadest measure of economic performance — expanded at a robust 4.4 percent rate.
But apparently, say analysts, this windfall has failed to trickle down to most of the middle-class, not to mention poor Americans.
“You just have to look at corporate profits to see where the benefits of improved growth have flowed — straight through to the business bottom line,” said Nigel Gault, U.S. economist at Global Insight.