The ability of many Americans to buy homes continues to be tested.
The median hourly wage of American workers is down 2% since 2003 when adjusted for inflation, according to economists, even though there have been acceptable gains in productivity. The rising price of oil and gas is driving up the cost of transportation and consumer goods, while healthcare costs outpace any wage increases, except for the highest income earners, analysts pointed out.
While the Federal Reserve halted its two-year stream of bumping up the federal funds rate at its meeting in August, it hasn't hinted at what the central bank might do this month. Chairman Ben Bernanke said last week that rising income inequality posed a real danger to workers and corporate profits. Even as the American economy grows, workers in the 90th percentile (those making $80,000 a year) have seen inflation outpace wage increases.
CUNA's Forecast
The CUNA CU Economic Forecast for 2006 inflation is 3.5% and it posits a reduction in 2007 to 2.5%. But InflationData.com posts a July inflation rate of 4.15% and the Bureau of Labor Statistics website shows the national unemployment rate at 4.8% in July, a match to CUNA's 2006 forecast.
The Fed's desire to control inflation may override the need to keep unemployment in check, but that portends the loss of millions of jobs, said Allan Sinai, chief economist at Decision Economics.
The rising value of homes during the boom allowed homeowners to borrow against equity and maintain spending, but for many, that option has already been tapped. With prices stabilizing or lowering in some areas, a pullback in spending could be the only choice.
