Steve Blitz Morning Notes

Wage and salary disbursements are 6.5% below year ago levels compared with -6.0% last month and -1.2% in December. Wages never before declined during post-war recessions -- wage growth just slowed as layoffs grew (see chart). But now, as a byproduct of disinflation purchased with a strong dollar policy, wage levels are falling even though the decline in employment is smaller relative to total employment than it was in the 1973-74 recession. The implication for future consumer spending is not good.

The pace of wage declines will surely abate as layoffs slow and employment eventually increases. A slowdown in the decline does not necessarily mean positive growth in wages and by the time year-over-year changes in wages are positive the accumulated loss in buying power will be even greater than it is now. With wages falling and balance sheets overleveraged it is difficult to see consumers leading the economy out of recession.

All this underscores the importance of government spending -- and yes, spending is stimulus. As for the size of government borrowing, no one else is so it isn't a problem right now. As for all the future projections and warnings of "crowding-out", we should just recall that a few years back people, including Greenspan, were concerned about a shortage of Treasurys. In fact, that is why foreign central banks were encouraged to buy Agency debt beginning in the 1990s.

Lastly, it is time to put inflation concerns on hold.