Wage Hike Ahead? Small Business Survey Suggests Yes

A view of the the NFIB survey and wage growth gives a hint of what may lie ahead in the wage sector.  Consumer spending dropped $7 in June which surprised many. 


While Americans' spending in June was generally on par or lower than their average May spending, this month's $7 drop is one of the largest recorded by Gallup during this time of year since 2008, when June spending fell by $10. The June 2008 spending average of $104 is still the highest average for that month in Gallup's six-year trend.

Can it be the new jobs being created (majority at the low end) is weighing on consumers pocketbook?  #shocker!  But what about the spending of the wealthy lifting all boats?  You know; that good old trickle down effect?

According to Econoday, the drop in daily spending among all Americans can largely be attributed to upper-income Americans spending less in June. Could the wealthy be running low on things to buy?  Yes sarcasm on my part but a drop is not what anyone wishes to see.

There are some encouraging signs out there however.

The latest from the small business survey (NFIB) shows that while inventories are holding and capital outlays and sales projections are down, what's up is job openings and plans to hire.  

Yes, plans to hire.

So what's holding back the consumer?  My guess:  low wages and gas prices.

David Kotok penned on Wednesday:

Gasoline prices have reached levels that (1) will be sustained for a while in all likelihood and (2) that are, in real terms, equivalent to levels that previously led to economic slowdowns in the US. This development prompted our exit from [an overweight position in the Energy] sector.

In a compelling study, Ned Davis Research examined the real price of gasoline, adjusted for the inflation rate, and its economic impacts. The inflation-adjusted price of gasoline today has reached levels that have historically throttled growth. Furthermore, the Ned Davis study finds that a higher price for gasoline would be the equivalent of a major shock. The research suggests that under either circumstance – current gas prices or prices that surge even higher – the weight on the economy from that adjustment is onerous.

So we're at "do or die" levels in energy.  They've been trying to get Americans accustomed to $3 gallon gasoline and any conflict in the Middle East, would spike the black gold and damage US spending even further........because $4/gallon harms consumer spending in a big way.

So do they let the price of crude oil and gasoline drop?  Heaven forbid it hit big oil's pocketbook or profit margins in any way. (sarcasm)  Or do we push for higher minimum wage to ease the pain?

Already in 2014 we have seen the push intensify for Congress to raise the minimum wage with many states, tired of the deadlock, moving forward on their own to raise their own state or local minimum wage which I've written about numerous times HERE HERE HERE and HERE just to name a few. 

Recent surveys also show that states which have raised their minimum wage, have seen job expansion (see left - click to enlarge.

With this,  low and behold, their consumer spending went up, small business grew and jobless rates fell.  Just checkout the links above for evidence.  So much for the fear mongering out there.  Job killers?  Nonsense.

Raising the Federal minimum wage would also save the government millions each year in food stamps, housing assistance, etc. as the current minimum level places workers beneath the poverty level.  Ending an obvious area of corporate welfare; pure and simple.

Oh, btw, with higher minimum wage, it opens the doors to higher inflation being tolerated.  *wink wink*  Markets love to inflate their way out of recessions.  Just food for thought.

As more and more states are embracing a higher minimum wage, I believe we will see an increase in consumer spending overall.  If only Congress would listen but with midterms in November, you know that's not likely to occur.

Image courtesy of ThinkProgress

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