A 'Wage-Less' Recovery in the US

The connection between increasing corporate profits and decreasing employee compensation has been recognized by economists for several years. It is, however, astonishing to find a Wall Street Journal column promote, let alone, acknowledge it. The underlying truth has to be worrisome to thoughtful observers; ultimately your employees are your customers. If they dont have money to spend, you will not have money to operate. Henry Ford saw this over one hundred years ago and helped usher in one of the most affluent periods in history. The question is why policy makers and executives appear to have forgotten that connection. Kelly Evans reports in WSJ's "Ahead of the Tape" column:

"These are pretty heady times for companies, in part because they are painful for many workers.

The lack of wage pressure in the U.S. economy suggests the boom in corporate profits still has room to run. Labor, after all, is typically the single biggest cost of business. And as Friday's employment report showed, there is still little broad upward pressure on wages and salaries.

Average hourly earnings were flat in March for the fourth time in five months. Their 1% annualized growth during that period is the weakest such stretch in 25 years, according to Gluskin Sheff Chief Economist David Rosenberg. The U.S., he says, is experiencing not a jobless but a "wage-less" recovery. And that's likely to continue while the unemployment rate, which came in at 8.8% in March, remains high.

Of course, that also offers employers some breathing room, especially with the cost of fuel and other supplies on the rise. Analysts expect S&P 500 companies to post a 12% year-to-year increase in their first-quarter earnings, which start dribbling out later this week, according to FactSet. The season kicks into full swing with aluminum giant Alcoa's report on Monday, April 11.

That S&P 500 earnings gain would be a marked slowing from the fourth quarter's 31% jump, of course, but it's still a healthy increase. Indeed, the latest Business Roundtable survey of chief executives showed their sentiment jumped to a new high in the first quarter. Yet recent surveys of consumer confidence, meanwhile, have tanked.

The lack of wage gains has much to do with that. It is bad enough that salaries are basically stagnant; it is worse that it comes as living costs are climbing. In fact, after adjusting for inflation, real wages are actually falling. The consumer-price index was up 2.1% in February from a year earlier; average hourly earnings, as of March, were up just 1.7%.

The hope is that stronger wage gains lie just ahead. Yet recent history offers little comfort. Census data show the median, or typical, household income in the U.S. in real terms peaked back in 1999 and has since fallen about 5%. The paradox of corporate efficiency, perhaps, is that if you squeeze employees hard enough, at some point even your own customers disappear