Just a short addendum here to recent posts here challenging the official government (Labor Dept.) view that wages rose 3.1% last year. And a commentary on what the recent firing of neocon, John Bolton, may mean for the US-China trade war.
Median Income vs. the 3.1% Wage Gain Spin
Yesterday the Commerce Dept. issued its report on quintiles (20% segments) on income inequality in the US. It showed that Median Household Income rose only 0.9% in 2018, which “officials said isn’t statistically significant from the prior year” (Wall St. Journal 9-11-19).
This corroborates my argument that the 3.1% (really 1.5% after government’s own inflation adjustment) represents wage gains skewed to high end wage earners, the 10% or so of the labor force who are tech engineers, professionals, supervisors, advance degreed health care, etc.). The vast majority of workers saw little if any wage gains. Only 0.9% per the Commerce Dept. at the median household level. (Unadjusted for inflation also?).
This also supports the findings of the various independent surveys noted in my prior posts (Bankrate,Payscale, McKinsey, etc.) that estimated median wage gains ranging from -0.8% to 1.1% as well as the finding that 60% of the workforce saw no wage increases at all in 2018.
And now Trump’s tariffs are about to hit household consumption big time. Chase bank researchers estimate the tariffs that took effect Sept. 1, 2019 will result in a reduction of an average $1000 per household. That will whack consumer spending, two thirds of GDP, big time going forward. With construction spending, manufacturing, and business investment all turning negative now, only consumer spending has been holding up the US economy, based mostly on credit card and other debt based spending increases. Now that will be reduced by $1000. So watch for consumer spending to weaken over the coming winter.
Will Bolton Departure Weaken Anti-China Hardliners’ Opposition to a Deal?
That’s why Trump is now so desperate to force the Federal Reserve, Powell, to rapidly cut interest rates, as he is now demanding, to zero if necessary. But those cuts will have little, if any, effect on the real economy. The central bank rate cuts are instead about trying to slow the rise of the value of the US dollar, however, not about stimulating real investment and GDP. If that dollar rise continues, already up 10% this year, it offsets Trump’s tariff hikes and thus undercuts his hand in negotiations with China. That’s why a further slowing US economy and dollar rise, should they occur, will likely push Trump toward closing a deal on trade with China. But not yet. Wait until closer to 2020 election. The US economy will have to get worse. And it will.
Now that Bolton’s been thrown under the bus by Trump (with so many others), the influence of the neocons in Trump’s regime are reduced and chances of a trade deal with China are rising. Trump will eventually strike a deal, likely next year, take the major concessions China thus far has offered and has left on the table, and lie about the rest of his concessions to his political base. Trump desperately needs a deal on trade with China before the 2020 election in order to win next November. He also needs one or more ‘wins’ in foreign policy he can promote and exaggerate (Iran, So.Korea, etc.). Bolton was an obstacle who engineered the collapse of negotiations with So. Korea, the failed regime change and almost invasion of Venezuela, and the near war with Iran. (He may have also been behind the collapse of the Taliban meeting with Trump recently, which he, Bolton, adamantly opposed). With Bolton now gone, it will be interesting to see if Mnuchin and Pompeio are given the lead over the remaining neocon advisors–Lighthizer and Navarro–in the next round of China trade negotiations. If so, some kind of a deal grows closer with China.
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