Figure 11-11: Combined year-over-year increases in employment and real earnings growth approximate growth in real consumer spending (PCE)
Adding the year-over-year rate of increase in real average hourly earnings (unit wages per worker) to the year-over-year rate of increase in employment (number of workers) approximates the combined effect that these two “engines of consumer demand” have on consumer spending. The sum of these series (green line on chart) closely matches the uptrends and downtrends in consumer spending (black line). This suggests that these two economic inputs–real hourly earnings (leading) and employment (lagging)–combine to account for a preponderance of the advances and declines in the consumer-spending cycle. Net borrowing or saving by consumers accounts for most of the difference between these two lines. Because real average hourly earnings is a pretax series, however, tax cuts can create anomalies (see 1982 and 1986, and 2003-early 2004).
Current Comment:The uptrend in Y/Y employment growth (Figure 11-6), combined with a modest improvement in real-wage growth (Figures 10-4 and 10-7), have helped real consumer spending growth to improve moderately thus far in 2012.