Consumers 'Running in Place,' Can't Earn Enough Money

Young adult Asian male standing In aisle of grocery store looking confused while pushing cart and looking at selection of grocer
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By Rhonda Schaffler

NEW YORK -- The biggest hurdle to a stronger economy is the lackluster wage growth during the current recovery, according to Richard Yamarone, a senior economist at Bloomberg.

Yamarone said the economy has been muddling along for years because the consumer isn't in the driver's seat. "Consumers are running in place," said Yamarone. "They're not making as much money and, adjusted for inflation, they're really not making a whole heckuva lot of money. And how do you facilitate trade or consumption? By how much money you bring in."

Yamarone said the lack of consumer spending power explains why GDP growth has been running in a range of 1.5 to 2.5 percent, which he believes is disappointing at this stage of the recovery.

"We're muddling along. It's not a strong thing, it's not a positive thing," he said. "We're just merely getting by." Ironically, consumers may have to shell out more for products and services in the months ahead.

Yamarone recently studied 300 quarterly earnings transcripts and found that companies are planning to raise prices because their own costs are going up. "They're facing higher price pressures from minimum wage legislation around particular areas of the country. They're seeing higher costs because of the Affordable Care Act," said Yamarone.

Admittedly, those higher costs may be offset by a drop in prices elsewhere, such as lower fuel costs. Still, Yamarone remains concerned about the pace of economic growth, especially as the Federal Reserve appears poised to raise interest rates next month.

Yamarone spoke with TheStreet's Rhonda Schaffler at Camp Kotok, an annual gathering of economists and money managers held each year in Maine. During Camp Kotok, an exclusive survey conducted by TheStreet found that 55 percent of those polled believe the Fed will raise rates in September.
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