The Dow Jones Industrial Average logged a six-year high on 5 May 2006, as labor costs rose nearly twice what was expected in the first quarter of 2006, and investors grew more comfortable with oil inflation.
Rising labor costs and higher inflation rates worry the Federal Reserve; however, job creation was revised lower for February and March, and new data suggests only 138,000 new jobs were created in April according to United States Labor Department.
Unemployment insurance claims rose to 322,000 during the week ending 5 May and the government noticed the number of corporate layoffs is less than half the number at this time in 2005.
The labor market in general has "now become a warning flag for inflationary pressures," Joel Naroff, head of Naroff Economic Advisors, wrote in an e-mail to clients. "They are rising fast enough to create real concerns that businesses will have to recoup some of these costs through higher prices."
Hourly compensation rose 9-cents to $16.61 in April, or 3.8 percent ahead of April 2005.
While all points mentioned thus far are standard press headlines, how has the 'real' rate of inflation impacted your pocket book? Do positive signs from Wall Street, low (or stable) unemployment figures, and the Federal Reserve somehow make your daily expenses more acceptable?
Measuring from year 2000 the rate of inflation was lowest in 2002 and highest in 2005, but add the five years together and inflation is 16.14 percent. On the flip side, if you were earning $50,000 in year 2000 and today you earn $59,000 in May 2006 -- the law of inflation average reports you are keeping up...not ahead.
For the first four months of 2006, inflation has risen an average of 3.7 percent on top of 16.14.
Nationwide, personal income has risen 21.7 percent for the same five years; however, per capita personal income has risen 15 percent. The 6 percent difference is largely due to higher salaries and bonuses given to higher wage earners -- not the average employee.
For the average worker, you are paying 1.14 percent above your salary increase to pay for expenses. With some 140 million workers in the United States, more than half are struggling to make ends meet. More often than not consumers turn to their credit cards to make up the difference.
In real-time, and by providing figures the federal government does not measure, take a look at the following price increases for every day items for years 2002, 2003, 2004, 2005, and through May 2006. (Story continues after the table.)
In year 2002 $1,441 per month covered a sample list of items in the table provided, and according to the Bureau of Labor Statistics' inflation calculator, the same amount of cash-value offers a buying power of $1,600.40 in May 2006.
However, the Bureau's calculator is short $89.28 per month on exactly the same expenses for the past four years and five months. If your annual salary has not increased by $1,071.38, these simple items would be out of reach.
These numbers could explain why the average consumer in the United States continues to spend more than they earn.
Furthermore, savings rates for the average consumer fell into the red during 2005 --a trend not seen since year 1933-- and consumers have yet to save a penny mid-year 2006.
The difference between 1933 and the early 2000s is that credit and home equity loans are easy to secure in 2006. The "average" credit card holder owes slightly less than $10,000. The news headlines tell part of the story...but watch your checking account for the real inflation figure.