James Saft is a Reuters columnist. The opinions expressed are his own.
HUNTSVILLE, Ala. – Right about now, even the most committed capitalist investor ought to be hoping for one thing: that labor soon has the upper hand.
That’s because the whole edifice: the global economy, the consumption-based developed economies and the share prices they power are crumbling because average workers simply haven’t got enough earning and buying power to play their central role.
Wages in the U.S., for example, have been stagnant for the best part of 40 years, during which time the consumption merry-go-round has only been kept spinning through a combination of artificially high asset prices and spending borrowed money.
Consumer incomes actually fell in August for the first time in almost two years, according to new data, and consumer spending only eked out a modest gain due to a sharp fall in the savings rate. Given that people are living longer and have stressed balance sheets, dis-saving is a tactic that will only work for so long.
This state of affairs has allowed corporate profits, as a share of the economy, to hit their highest point in the second quarter since records began in 1947, and on track to hit an annual high since at least 1929. Even the stock market no longer sees that as evidence of rude health, as shown by the steady, grinding decline in prices relative to earnings.