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Earnings Dropping, Energy Prices Rising

By Matthew Yglesias  

"Earnings Dropping, Energy Prices Rising"

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Green Line "L" in Chicago

Pretty much nothing in the latest series of wage and price reports sounds like recovery to me. You have very low core inflation, a return to rising energy prices, and pathetic earnings numbers:

Energy costs for the 12 months ending in December shot up 18.2 percent. That was the biggest jump since 1979, after they had dropped 21.3 percent in 2008. The energy surge was led by higher gasoline costs, which rose 53.5 percent after falling 43.1 percent in 2008. [...]

Core inflation, which excludes the volatile food and energy categories, rose 1.8 percent for the 12 months ending in December. It matched the 1.8 percent rise in core inflation in 2008. Both gains were the smallest since a 1.1 percent rise in 2003. [...] The 1.6 percent drop in average weekly earnings for nonsupervisory workers was the worst annual performance since a 2.5 percent decline in 1990. Weekly earnings have fallen in five of the past seven years, underscoring the pressures American households were facing even before the recession began.

During the previous gas price surge, we saw a noteworthy decline in vehicle miles traveled and records set for mass transit usage in many cities. Then came the recession which hammered the state and local governments budgets that fund those mass transit systems. The federal government, very unwisely in my view, did not include substantial mass transit operating assistance money in ARRA. Consequently, the vast majority of systems are undergoing a process of raising fares and slashing service. That means that as gas prices rise again, and cash-strapped families are even more inclined to try to save money by riding a bus or a train than they were back in 2008, they’ll find that they can’t save as much money (higher fares!) and also that it’s less convenient (less service!) which is going to increase the extent to which these higher gas prices serve as a drag on growth.

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