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Inflation-adjusted weekly wages drop 1.6% for 2009

WASHINGTON - The notion that consumers will help lead the economic rebound received a stark rebuttal Friday: The spending power of American families is being squeezed.

Workers saw inflation-adjusted weekly wages fall 1.6 percent last year even as consumer prices rose only modestly. Families' spending power sank as a result. Slack pay and scarce job growth are slowing consumer spending, along with tight credit and a rising savings rate.

For some families the overall inflation rate last year - 2.7 percent - understates their burden. Many are struggling with surging costs for health care and college tuition, both of which have been far above the overall inflation rate.

Energy led consumer prices higher last year, offsetting the biggest drop in food costs in nearly a half century, the Labor Department said. Core inflation, which excludes the volatile food and energy sectors, rose 1.8 percent. That's the second-smallest rise in four decades.

Economists expect core inflation to remain tame in 2010, giving the Federal Reserve leeway to keep interest rates at record lows to try to invigorate the economy. Inflation and wages remain low because employers can't or won't raise pay in an economy that's shed 7.2 million jobs since the recession began two years ago. The unemployment rate is 10 percent, and the number of jobless has hit 15.3 million.

The 1.6 percent drop in average weekly earnings for nonsupervisory workers was the worst yearly performance since a 2.5 percent fall in 1990. - AP

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