Commerce & Labor Reports Show Flagging Economic Indicators

Investor worries continue to mount with the announcement that unemployment claims jumped to a total of 375,000 last week, and the Commerce Department's report released today on incomes and spending show that consumers were losing confidence in December in the economy, with December's increase in disposable income being held out of purchases for consumer goods.

Recessionary pressures seem to be at play, at least in some small way, when looking at the Employment Cost Index (ECI) also released today. Wall Street investors seem unswayed by yesterday's .50 percent drop in rates from the Federal Reserve, with money shifting from stocks to treasury bonds. The Dow Industrial Average fell 88 points (.78%) in the first two hours of trading today, with both the NASDAQ and S & P 500 showing a similar loss in value.

The U.S. Department of Labor revealed its Employment Cost Index for the fourth quarter of 2007 today, and the cost to employers dropped to 3.0% for the year, a decrease from the 3.2% increase seen in 2006, with pay and compensation rates for union workers lagging behind their non-union counterparts. This is the lowest cost increase reported in close to a decade.

Unionized labor saw only a 2.3% in wages and compensation and a 1.5% increase in benefits for 2007, with wages holding steady to 2006, but benefits costs slipping down from a 4.2% in 2006. Non-unionized workers saw gains of 3.2% in wages, and a 2.6% increase in benefits.

Gains were seen in service sectors for wholesale and retail trades, but the aerospace industry saw a huge decrease in that component of the ECI, with workers in aircraft manufacturing seeing a fall of 6.4% for the fourth quarter, after a decline in the third quarter of 2.8%. Workers in the utilities sector saw a similar decline, of 4.3% in the fourth quarter.

"The real story here is that wages are lagging behind inflation," said clinical professor of finance David Sinow at the University of Illinois in a telephone interview. "We've seen a net decrease in the total value of the nation's assets of close to $3 trillion this past year," Sinow said, referring to declines in the value of homes and the stock market. "We've had two consecutive quarters with the economy in retreat. That's a recession."

Despite the declines in financial institutions' fortunes tied to the debacle in mortgage-backed securities, shaky loans, and foreclosures, that sector's employees saw an increase of 3% in compensation for the quarter - without the massive annual bonuses usually awarded in that industry at year's end taken into play.

The biggest gainers for the quarter were in technical services, and the leisure industry.

The ECI became one of the lagging key indicators that financial analysts and investors in the stock and bond markets use to gauge inflation ever since being mentioned in a report by former Federal Reserve Chairman Allen Greenspan in 1996.