Chart of the Week: Declining inflation is increasing real wages

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This is The Takeaway from today’s Morning Brief, which you can sign up to receive in your inbox every morning along with:

This week’s Chart of the Week features an excerpt from our latest Chartbook, a mammoth Yahoo Finance project in which dozens of economists and strategists send us a key chart and say why it’s important.

We’ve been featuring them in editions of our Morning Brief newsletter all week.

The almost three dozen charts and explanations tell the story of a strong market and economy carrying momentum into 2024, despite stumbles seen very early in the year.

Most of all, however, these charts illustrate the nuance often neglected on both bearish and bullish sides of conversations about markets — which too often boil down to AI hype and rate-cut obsession.

These charts are one of the best ways to get a handle on the factors exerting both upward and downward pressure on stocks, wages, prices, and more. And like most things in life, they don’t always line up perfectly.

Inflation is cooling. Stocks appear to be overvalued by historical levels. Most stocks aren’t that hot. A productivity boom could be a paradigm shift for everything.

And, as our Chart of the Week shows, consumers are still spending, supported by a rise in inflation-adjusted take-home pay.

Neil Dutta, head of economic research at Renaissance Macro, noted that this “popular bearish talking point” of a US consumer on its last legs is simply not borne out in the data.

“[Consumers] have drawn down all their excess savings, and, as a result, they no longer have a cushion of savings from which to spend,” Dutta wrote, summarizing the skeptical case against US consumers.

“I don’t buy it. The excess saving story is one that has officially outlived its usefulness.”

“Consumption is being supported by ongoing gains in real incomes,” Dutta added. “With consumer price inflation slowing, and the labor markets solid, real incomes are rising. Since May, real incomes net of [excluding] transfers, a key recession determinant, are up roughly 3% at an annual rate.”

And though these figures come from a different data set, Friday’s jobs report showed wage gains continued to impress, rising 0.6% over the prior month in January and 4.5% over last year. And this while inflation continues to moderate.

No wonder consumer sentiment has been so good — and, this week, looking even better.

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