Are We Becoming a Nation of Burger Flippers?

October 18, 2015

During this election year, there are economic sound bites flying everywhere and it is difficult to determine fact from fiction. In this political landscape, nothing is more contentious than the job reports. Are the jobs reports good or aren’t they? Are wages growing or not? Are we becoming a nation of burger flippers? As investors, it is critical to get down to the facts since wages in the U.S. and the resulting consumer spending drive a lion share of the U.S. and global economy. At Cedarstone when we look at the facts we see solid wage growth and job creation, not the ‘nation of burger flippers’ that is being portrayed by some.

 

One key assertion behind the ‘nation of burger flippers” argument is that ‘wage growth is stagnant’. In fact, growth in Average Hourly Earnings has slowed from 3.4% before the recession to 2% after the recession (see chart below) giving the initial impression that the assertion is true. However, it is also important to compare any growth figure to inflation. When making that comparison we see that inflation has also slowed dramatically, resulting in higher real wage growth. It is this ‘real’ growth figure that is most important since it reflects an increase in buying power to the worker. For example, If you get a 3.5% raise this year, but your living expenses go up (inflate) by 3%, then you have a ‘real’ increase in wages of just .5%. If you get a 2% raise, but inflation is running 1% then you have an increase in ‘real’ wages of 1%.

We see real U.S. wage growth as a positive indicator for the economy and one reason that we remain cautiously optimistic that the economy will continue to grow in the months to come. Regardless of the sound bites from the politicians, there are good reasons to be optimistic about the U.S. economy. We remain confident about the positioning of our portfolios and see good opportunities for returns in the future.

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