Maybe it’s a contagion. Or maybe the Web’s transparency just makes it easier to spot. Alternative facts are running rampant, last week across the cover of Barron’s, the venerated financial weekly, and in the pages of The Wall Street Journal.
According to Barron’s, consumers “are not opening their wallets.” They’re shrinking incredibly. That’s simply a total mischaracterization of the facts.
Barron’s sister publication, The Wall Street Journal, on June 2, made the same inflation mistake in reporting that “weakness in wages has been a mystery.” According to The Wall Street Journal, “no one is getting a raise.” Actually, the real mystery is their reporting of the facts.
Barron’s and The Wall Street Journal ignored the inflation-adjusted figures shown here, which really matter most.
At 3.2%, real consumer spending is just three-tenths of one 1% short of the after-inflation compound annual growth rate of 3.5% achieved in the last economic expansion. Demographic trends explain the three-tenths of 1% difference, with aging baby boomers spending less in retirement, which should be expected.
The data shows that average hourly earnings are accelerating. At 2.5%, May’s 12-month growth in average hourly earnings accelerated faster than the 2.1% averaged in the nine-year expansion still under way.
In addition, after adjusting for inflation, average hourly earnings have been accelerating dramatically – hitting all-time highs. Although real wage gains were stagnant for five years post-recession, since 2014, real wages have soared. Wage stagnation – although it is reported on by the media frequently – is a fiction.
Growth in real wages and in real spending by consumers is really important because 69.3% of economic growth comes from consumer activity.
The Standard & Poor’s 500 index closed on Friday at 2431.77, just a fraction off its all-time high reached a week earlier. While the stock market could experience a 10% or 15% correction at any time, the market may be reflecting the good conditions, including the booming real growth in the private sector of the U.S economy that is hidden from plain sight.
The private sector is growing at a real annual compounded rate of 3%, considerably faster than the 2.1% after-inflation annually compounded growth rate of the last expansion.
The private sector accounts for 83% of all economic activity in the U.S., making it much more influential than the growth in the government sector of the economy, which accounts for the other 17% of U.S. economic activity.
Consumption and investment by the government sector has actually been shrinking, which is really good news. Declining government economic activity since the recession ended in early 2009 is a drag on overall U.S. GDP growth, and masking the booming 3% real growth in the private sector, which is really good and real news.