As of July, average hourly earnings in the U.S. when adjusted for inflation had barely risen (0.1%) versus the year ago level. That stagnancy followed an outright decline in real earnings of 0.4% for all of 2004.

The lack of movement contrasts with the recent strength of consumer spending which has been growing 4% in real terms. Part of the discrepancy is explained by consumers' increased usage of debt. While the latest consumer credit figures show no growth acceleration as of June (steady at 4.5%), consumer debt from the more broadly defined Flow of Funds accounts indicates consumers' indebtedness accelerated to 10-11% growth versus less than 9% as of 2001.

Faster growth in wages & salaries also explains some of the discrepancy. As of the latest personal income report, wages & salaries had risen 7.4% from a year earlier and 5.0% when adjusted for inflation. These growth rates are faster than in the popular average hourly earnings measure for several reasons including the recent increase in job growth, fewer individuals working part time and relatively strong jobs growth in the high wage financial as well as the professional & business services industries.