untanglingwebs
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I never thought I would see firefighter jobs start at $10 per hour. Wages are being cut everywhere but at the top.
Could deflation be in our future? Some seeing wages fall
Updated 55m ago
By David J. Lynch, USA TODAY
Union electricians in the St. Louis area recently swallowed an 8.23% cut in pay and benefits. With roughly one of every three of them unemployed, they didn't have much choice.
"We are in the throes of a construction depression. ... We have catastrophic unemployment," says Steve Schoemehl, business manager of International Brotherhood of Electrical Workers Local 1.
Such outright wage declines hint at deflation — a generalized drop in wages and prices. The last time that happened in the United States: 1931-33, when prices fell at an average annual rate of more than 8%.
Friday, the Labor Department is expected to announce that the consumer price index (CPI) fell in June for the third-consecutive month. The median forecast in a Bloomberg survey of 72 economists was for a 0.1% monthly decline. "I think deflation is a very real threat," says Richard DeKaser, president of Woodley Park Research in Washington, D.C.
Falling prices, of course, can benefit consumers — so long as the economy is expanding and the declines are seen as temporary. But if the declines are expected to continue indefinitely, consumers delay purchases, and businesses postpone investments. As incomes shrink, mortgages and other debts become harder to repay.
For now, steep wage cuts such as those being endured by roughly 3,400 electricians in St. Louis remain the exception. Nationally, total wages rose in May for a fifth-consecutive month.
Most economists, even those such as DeKaser who anticipate continued modest price declines, say the risk of a truly damaging bout of deflation remains low. "I just don't think it's a problem. The economy is recovering," says Michael Bordo, an economics professor at Rutgers University.
As the economy slowly improves, demand for goods and services will increase, and prices will resume their upward march, he says. Even if the economy stumbles into recession again, and the price declines threaten to become self-reinforcing, the Fed would fight back.
The Fed's benchmark lending rate already is near zero, but the central bank could use other tools. In a 2002 speech, Fed Chairman Ben Bernanke— then a member of the board of governors — said the Fed could announce it would keep interest rates near zero "for some specified period." It could set "explicit ceilings" for the yields on certain Treasury securities and enforce them by buying unlimited government debt.
http://www.usatoday.com/money/economy/2010-07-16-deflation16_ST_N.htm
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