All totaled, the nation's gross domestic product, which measures the value of all goods and services produced, rose at a below-average 2.5 percent annual rate in the second quarter, a sharp drop from the rapid 5.6 percent pace of the first quarter, the Commerce Department said.
Meanwhile, consumer prices shot up at a heated 4.1 percent annual pace in the quarter, according to Commerce's inflation measure. That was more than double the rate in the previous quarter, and matched the rate of the third quarter of last year, when energy prices soared after Hurricanes Katrina and Rita.
Of course these numbers fluctuate all the time, so one bad report isn't necessarily cause for us to start jumping off buildings yet. Unfortunately, there is more bad news. Wages are not only not keeping up with inflation, they're falling far behind.
The inflation rate was much higher than the increase in workers' wages, salaries and benefits, according to the Labor Department's employment cost index, which was also released today. The ECI rose 0.9 percent in the last quarter, up from a 0.6 percent increase in the first quarter. That left the index 3 percent higher in June than the same month last year.
The obvious object of blame for this downturn is energy, namely gasoline prices. It's hurting the bottom line of many consumers. I've read quite a few pie-in-the-sky articles recently about how gas prices aren't actually hurting the economy, but it seems that it's finally taking an indisputable toll. A lot of that GDP is in the energy sector, where oil companies are still reporting enormous profits. For example, Chevron posted record profits:
The San Ramon-based company earned $4.35 billion, or $1.97 per share, for the three months ended in June. That represented an 18 percent increase from net income of $3.68 billion, or $1.76 per share, at the same time last year.
Exxon-Mobile is also doing fine:
Exxon Mobil Corp. said yesterday that its second-quarter earnings jumped 36 percent, to $10.36 billion, boosted by climbing oil prices and larger profits at its refineries.
Unfortunately, a lot of that money is coming out of consumers' bottom lines and those high gas prices are responsible for the inflation we've been experiencing.
Much of the inflation in the second quarter was due to rising energy prices, as oil shot above $70 a barrel and gasoline averaged close to $3 a gallon. And oil and gasoline prices have moved higher since June, suggesting price pressures remain strong.
The rest of the article details how the consumer market is weakening, basically because Americans' wages aren't growing enough to enable them to keep buying consumer goods at the previous rate because gas prices are eating them alive.
The economy cooled during the past three months primarily because consumer spending rose more slowly, at an annualized 2.5 percent rate, down from a 4.8 percent pace in the first quarter. That confirmed other recent reports of the softening housing market, falling automotive sales and weak results for many retailers, particularly those such as Wal-Mart that cater to the lower-income households hardest hit by high gasoline prices.
It's not a rosy picture. We need to take it seriously and the best thing we can do to divorce our economy from inflationary pressures is to make ourselves independent of energy from unstable sources. We need to get off gas powered cars at least enough to lower our oil use to only what we can get from domestic and friendly, stable producers. Switching over to ethanol may cost just as much at the pump, but that money would be flowing into the coffers of domestic American producers. It's not just that we'd be keeping that money in America, but that ethanol (among other energy industries) is produced a lot more locally and widespread than oil, natural gas or coal. That is money that would flow into local economies of the American landscape, something we badly need.
In addition to this, we need to counter the depression of wages by raising them to a "living wage" level. We should accomplish this through raising the minimum wage. Despite what some argue this would do to the economy, it is painfully obvious that the Wal-Mart model of lowering prices at the expense of wages is a monumental failure and disastrous on the local level. These suggestions will not fix everything that's wrong with our economy, but we have to start somewhere.