Wall Street Speaks Up for Workers. Or At Least for Their Spendable Wages

Ya mean if you paid people more they might spend more so that the stock prices of the companies that make the stuff they might buy would then go up?

And the accumulated sum of all that extra spending is significant enough so that Wall Street analysts are willing to be quoted by name uttering such apostasy?

And the Wall Street Journal will even print such rank socialism without snarky asides?

I guess all those people who've been saying this for, oh, seven or eight years now might have actually had a point. Who'd a thunk it? JL

ES Browning reports in the Wall Street Journal:

"Without a real acceleration in wages it is hard to get a meaningful pickup in consumer spending,"

Investors aren't heartless, but they usually don't mind when workers' pay doesn't rise quickly.

That is because slow wage increases, while painful on an individual level, usually keep corporate profits high and inflation low, creating better opportunities for shareholders.

And yet, as if anyone needed further proof that we live in exceptional times, Wall Street is starting to complain that wages are too low.

"Without a real acceleration in wages it is hard to get a meaningful pickup in consumer spending," explained Michelle Meyer, senior U.S. economist at Bank of America Merrill Lynch.

Weak consumer spending holds back profits and economic growth, one reason stock gains this year have been soft. Both the Dow Jones Industrial Average and the S&P 500 closed at records on Friday, but the Dow is up only 2.1% for 2014, and the S&P is up just 5.5%.

The problem is that new jobs often pay less than the ones destroyed in the recession, said Jack Ablin, chief investment officer at BMO Private Bank, which manages $66 billion in Chicago.

"New jobs are coming through at lower wages. Collectively, people have fewer dollars in their wallets even though they have jobs again," he said.

That helps explain why consumer spending fell in April for the first time in a year, according to a May 30 Commerce Department report.

Weak wage gains also are making it hard for the housing market to return to normal, Mr. Ablin said.

He calculates that new single-family home construction is running at less than 500,000 a month. Demographics say it should be twice that, he said.

"People are waiting longer to get married and they are having fewer kids," Mr. Ablin said. That is making them delay home purchases. "It is certainly making us a little more cautious on the economy."

One result: He has cut way back on his holdings of smaller stocks, which are especially dependent on economic growth and whose prices had soared on hopes for the economy. He is moving more of his investment money to Europe, where stocks look less expensive than in the U.S.

"If the economy were stronger, I wouldn't be as worried" about high U.S. stock prices, he said, and he would be moving less money out of small stocks and into Europe.

Merrill Lynch is forecasting that economic growth will rise to a 3.4% annual rate in the second half of this year, after shrinking at a 1% rate in the first quarter. But if wages don't pick up, Merrill will have to revise that forecast down, Ms. Meyer said. Hourly wages rose 2.1% in May from a year earlier, according to Friday's employment report. That was in line with the recent trend, which is well below prerecession rates.

This angst helps explain one of the year's big conundrums: the behavior of U.S. government bonds. The benchmark 10-year Treasury bond started the year yielding 3.0%, well up from the 1.67% it yielded in late April 2013.

The rising yields reflected expectations of higher economic growth. In a strong economy, demand for money pushes up interest rates, including bond yields. Investors were widely forecasting a rise in yields to 3.5% or more this year, especially with the Federal Reserve gradually eliminating a bond-buying program that held down interest rates.

Instead, the economy turned soft, partly because of terrible winter weather and partly because of more basic problems such as weak wage growth. The 10-year Treasury yield slumped to 2.44% late in May. On Friday, it was