December 12, 2011
By Dees Stribling, Contributing Editor
U.S. consumers seem to be enjoying some holiday cheer, at least according to the latest Reuters / University of Michigan consumer sentiment index, which was released on Friday. The preliminary December index rose by 3.6 points to 67.7, the strongest it’s been in six months, and the fourth monthly rise in a row.
In fact, the index is roughly where it was in June, just before Congress flirted with a U.S. government default, whose unknowable prospects looked spooky indeed. But the consumer sentiment, as measured by the 500 households surveyed each month on their financial conditions and attitudes about the economy, is still well under levels recorded during most of 2010 and early 2011.
The expectations component of the index improved by even more than the base index: 5.7 points to 61.1. Are Americans finally beginning to feel the benefits of stronger retail sales, a rising stock market, higher factory output and even a narrowing trade gap? Maybe, but the sentiment is likely due to closer-to-home factors, such as less fear of a job loss, since no one (except maybe Ben Bernanke) wakes up cheerful or even mildly optimistic because of a smaller trade deficit. The current conditions component of the index didn’t rise quite as much as expectations, however, up 0.3 points to 77.9.
Workers’ Share in Economic Output Down Drastically
The share of all U.S. economic output that is being paid as wages dropped to 57.1 cents on the dollar during the third quarter of 2011, according to the Bureau of Labor Statistics late last week, the lowest level since the BLS started tracking the figure early in the Truman administration. The trend isn’t actually new, with labor’s share of the U.S. economic pie — as opposed to that going to businesses in the form of profits, as well as that going to depreciation, interest and rent — generally trending down since the 1980s.
Still, after a spike in labor’s share in the early 2000s that went up to nearly 65 cents, the drop has been precipitous. Before 2000, the average labor share of economic output was about 63.9 cents on the dollar. If labor’s share were still that, an estimated $780 billion more would be in the hands of U.S. households to support the expansion of the economy, according to J.P. Morgan economist Michael Feroli in a recent note.
Euro-Zone Pacifies Investors for Now
By the end of the Brussels summit on Friday, most of the EU and all of the euro-zone countries had agreed to tighter fiscal controls, with the U.K. being the main exception, likely to protect the financial industry concentrated in the City of London, but also because the British don’t want to be sucked into a European superstate. To some observers, the British are missing the boat by vetoing new treaty revisions that would tighten fiscal controls, but others wags posited that the boat that just sailed was the Titanic.
In any case, the euro-zone apparently doesn’t need an entirely new treaty to tighten the screws. The summit came up with an instrument called an intergovernmental treaty, which the participants say will enforce fiscal discipline on the euro-zone nations that haven’t shown much it in recent years. Maybe, but it could also be a matter of Germany and France (but especially Germany) telling the debt-ridden nations of southern Europe that the northern European members of the euro-zone really, really mean it this time: no cheating.
Whether or not the new arrangement in Europe has any long-term prospects for success, investors seemed pleased on Friday by the outcome of the summit in Brussels, with the Dow Jones Industrial Average gaining 186.56 points, or 1.55 percent. The S&P 500 advanced 1.69 percent and the Nasdaq was up 1.94 percent.