Jobless Claims Rise, Wage and Salary Growth Slows

Stocks lost more ground on Thursday after the government reported slowing growth of the U.S. economy in the first quarter of this year. Although the sell-off was slow and steady through much of the day, the bears began to rampage in the later afternoon, sending the index of thirty blue chip industrial down in value by a total of one and a quarter percent for the day. The broader blue chip index of 500 companies lost nearly as much ground, and the NASDAQ composite slid by almost one and two-fifths percent. The economic news came as a surprise to forecasters, who had expected some slowdown in the pace of economic activity, but not as much. Adding to concerns on Wall Street about the slowing U.S. economy, claims for first-time unemployment benefits rose for the most recent week reported, moving up to 320,000 claims from a revised figure of 299,000 for the week previous, which had first been reported by the government as 296,000, a surprisingly low number compared to the historical averages for the Bush Administration, which has overseen an economy where unemployment has remained at anomalously high levels. The rise in first-time jobless claims back into the range above 300,000 is more consistent with the long-term pattern of substantial and continuing job losses that have been a hallmark of the neo-conservative Republican years in control.

Early Friday morning, the Commerce Department released figures showing that both household income and spending rose in March, but this was due largely to price increases in the goods and services they purchase.

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Salaries and wages can decline while household income rises if households increase the average number of wage earners, even if each of the wage earners receives less compensation per unit of time spent working.

  Confounding this picture, however, was a separate Labor Department report that salaries and wages grew in the first three months of this year at their slowest rate since data started being collected several decades ago: the Labor Department's Employment Cost Index indicated the salaries and wages for the period from January 1 to March 31 grew at an annual rate of about 2.4%, which would be well below the rate of inflation at the consumer level, meaning that in terms of purchasing power, workers are actually earning less money in real dollars. While the slow growth of business expenditures will bring cheer to Wall Street, it gives further evidence to economists of a long-term erosion of the ability of households to maintain a living standard from one month to the next, much less from one year to the next.

Thursday night, President Bush held a rare, prime-time news conference staged to promote his energy policy initiatives and his plan to privatize the Social Security system. Friday morning, oil prices rose sharply in international trading. With respect to his plan to fundamentally alter the nation's retirement system—whose long-term solvency problems, experts both inside and outside the government agree, could be solved by simply removing the cap on income subject to Social Security taxation—the President offered little in the way of new details, other than to suggest that lower income workers would be allowed a more generous benefit than had previously been proposed.

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A defined benefit plan provides for a known base level of pension in the future; a defined contribution plan specifies how much must be contributed, with the ultimate pension level determined by how that contribution performs before the pension begins.

  Bush did not, however, explain how such an alteration would not be politically vulnerable to future cuts as the costs of the privatized system skyrocket in the hands of stockbrokers and bankers. More importantly, though, with real wages and salaries eroding year after year, the planned move from the defined benefit system now in operation to a defined contribution system would have the ultimate effect of causing real contributions to fall over a worker's productive lifetime, leading to a lesser benefit in retirement. While not of concern to the political base of the Republicans who are vitally interested in redefining the relationship between the federal government and its citizens, it remains to be seen if the opposition party in Washington can, first, understand the complex long-term consequences of the neo-conservative agenda and, second, effectively convey to the voters the adverse consequences on them and their children of the plans of the ruling party's radicals.