Como se combate o populismo? "Com eleições", responde Fukuyama

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8:30 AM ET 7/28/06 U.S. Q2 EMPLOYMENT COSTS INDEX UP 3.0% YR-ON-YR, VS 2.8 Q1
8:30 AM ET 7/28/06 U.S. Q2 WAGES UP 0.9%, BIGGEST GAIN SINCE Q1 2003
8:30 AM ET 7/28/06 U.S. 2Q BUSINESS INVESTMENT UP 2.7%, LOWEST IN 2 YEARS
8:30 AM ET 7/28/06 U.S. Q2 EMPLOYMENT COST INDEX UP 0.9% VS 0.8% EXPECTED
8:30 AM ET 7/28/06 U.S. 2003-05 GDP REVISED LOWER TO 3.2% VS. 3.5%
8:30 AM ET 7/28/06 U.S. 2Q FINAL SALES UP 2.1% VS. 5.6%
8:30 AM ET 7/28/06 U.S. 2Q RESIDENTIAL INVESTMENT FALLS 6.3%
8:30 AM ET 7/28/06 U.S. 2Q CONSUMER SPENDING UP 2.5% VS. 4.8%
8:30 AM ET 7/28/06 U.S. CORE INFLATION UP 2.3% Y-O-Y, 11-YEAR HIGH
8:30 AM ET 7/28/06 U.S. 2Q INVESTMENT IN SOFTWARE, EQUIPMENT FALLS 1%
8:30 AM ET 7/28/06 U.S. 2Q CORE PCE PRICE INDEX UP 2.9%, MOST IN 12
8:30 AM ET 7/28/06 U.S. 2Q GDP SLOWS TO 2.5% FROM 5.6%, VS. 3.1% EXPECTED

ECONOMIC REPORT: Wage growth weaker than thought in 2003-05; GDP revisions show labor getting less, capital getting more
By Rex Nutting, MarketWatch
Last Update: 8:47 AM ET Jul 28, 2006

WASHINGTON (MarketWatch) -- The growth of employee compensation, already thought to be the slowest in any post-World War II recovery, has been even weaker than previously assumed, the Commerce Department said Friday.

In its annual benchmark revisions to gross domestic product and gross domestic income, the government said employee compensation actually totaled $7.03 trillion in 2005, about $83 billion or 1.2% lower than previous estimates of $7.11 trillion.

Rather than growing at a 2.9% annual pace in inflation-adjusted dollars, compensation instead grew 2.3% between 2003 and the end of 2005.
Wages grew at a 1.8% real annual pace, revised from 2.2% earlier. With the workforce growing about 1.3% per year, real wages per worker were up about 0.5% per year, about half the previous estimate.

Benefits also grew slower than previously assumed, rising at an inflation-adjusted 4.9% annual rate rather than 6.0% pace originally reported.

A different picture on wages, from different data source, was revealed Friday by the Labor Department, which said the employment cost index rose 0.9% in the second quarter, the fastest growth in costs since early 2005.

The Labor Department's ECI attempts to capture the average costs of keeping an employee on the books. It is adjusted for changes in the composition of the workforce. The GDP wage figures are simply a summation of all wages in the economy, without regard to the distribution.

The Commerce Department's GDP revisions showed only minor downward changes in growth and income. The broad picture of the economy was left largely unchanged by the revisions.

GDP was revised marginally lower in all three years. GDP averaged 3.2% in the three years, down from 3.5% previously. Since the recession ended in November 2001, the economy grew at a 2.9% pace, down from 3.1% estimated earlier.

For the second quarter, the government said growth slowed to a 2.5% annual pace, down from 5.6% in the first quarter.

Inflation was also revised marginally higher, with economy-wide inflation averaging 2.8% (instead of 2.7%) and core consumer prices rising an average of 1.9% (instead of 1.8%) per year through the end of 2005.

In the second quarter, core consumer price inflation accelerated to a 2.3% year-over-year pace.

The growth of employee compensation has become a hot political and economic issue.

For monetary policy, policymakers at the Federal Reserve are watching for signs that employee compensation could be accelerating faster than productivity. Persistent inflation is nearly impossible without a feedback effect through higher wages, economic theorists say.

High productivity and small wage gains have allowed firms to reap record profits, even as their input costs rise. Intense competition has, so far, reduced the ability of companies to pass along their higher costs to their customers.

The revisions to wages could mean inflationary pressures from labor costs are lower than previously assumed. That should give the Fed more room to pause its rate hikes.

However, the GDP revisions also showed that the core inflation was a tenth of a percentage point higher in the three years. A higher baseline for inflation could mean the Fed has more to do to bring inflation back down.

In the political sphere, Democrats have argued that the booming economy of the past four years has not benefited everyone equally. The incomes of the vast majority who labor to earn their livelihoods have been stagnant while those who let their money work for them have prospered.

Republicans have countered that the strong economy has been creating enough jobs to drive the unemployment rate down to 4.6%. Lower taxes have increased take-home pay, they say, and barriers to entrepreneurship and risk-taking have been reduced.

The new figures bolster the Democrats' side. Wages were stagnant, but income from assets rose even faster than previously believed.

While income from labor was revised lower by a total of $115.8 billion over the three years, income from owning capital was revised higher by a total of $139.9 billion.

Real dividend income rose at an annual rate of 12.1%, up from 6.9% previously reported. Dividend income was revised higher by $110.7 billion for the three years.

Real nonfarm proprietors' income rose at a 5.2% annual pace, revised from 4.3%. Proprietors' income was revised up by a total of $54.6 billion for the three years.

The faster payout of dividends reduced corporations' retained cash. Corporate profits were revised lower by a total of $38.8 billion for the three years. Before-tax profits were revised higher by a total of $136.3 billion, but capital consumption was revised higher by $173.5 billion, offsetting the gain in pre-tax profits.

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July 28 (Bloomberg) -- The U.S. economy grew at a 2.5 percent annual pace from April through June, less than expected, as business investment in equipment fell for the first time in three years and consumers reined in spending.

The government's first estimate of the quarter's gross domestic product, the value of all goods and services produced in the U.S., compares with a 5.6 percent gain in the first three months of the year, the Commerce Department reported today in Washington. A measure of core inflation accelerated.

Rising energy prices and higher borrowing costs will continue to restrain economic growth into next year, economists said. Slower growth will likely mean an end to two years of interest-rate increases by Federal Reserve policy makers, who predict an easing of inflationary pressures.

``The Fed is going to look at this and see the kind of slowdown they want,'' Brian Bethune, an economist at Global Insight Inc. in Lexington, Massachusetts, said before the report. ``There are still some inflation pressures nipping at their heels, but there's no question this is shaping up to be a situation that will allow them to pause fairly soon'' in raising interest rates.

Economists expected a 3 percent gain in GDP last quarter, according to the median estimate of 74 estimates in a Bloomberg News survey. Estimates ranged from 2 percent to 3.8 percent.

Housing Slowdown

Consumer expenditures rose at an annual rate of 2.5 percent last quarter, as a slowdown in the housing market discouraged spending, compared with a 4.8 percent pace in the previous three months. Economists expected a 2.1 percent gain, based on the survey median. Consumer spending growth has averaged about 3.4 percent a quarter the past 30 years.

With today's report, the government also revised GDP data going back to the first quarter of 2003. The economy grew at an average annual rate of 3.2 percent from 2003 through 2005, or 0.3 percentage point less than previously estimated.

The value of all goods and services produced in the U.S., the world's largest economy, rose to $11.4 trillion in the second quarter after adjusting for inflation. Unadjusted for price changes, GDP rose to $13.2 trillion.

The government's personal consumption expenditures index, a measure of prices tied to consumer spending, rose 4.1 percent after a 2.0 percent rise in the first quarter. The index excluding food and energy, a measure favored by Fed policy makers, rose at a 2.9 percent annual rate after a 2.1 percent rise the previous quarter.

The GDP price index, a measure of prices tied to the report, held at a 3,3 percent annual rate in the second quarter.

Business Investment Cools

Business fixed investment, which includes spending on commercial construction as well as equipment and software, rose at a 2.7 percent annual rate in the second quarter, the smallest gain since early 2004, after rising at a 13.7 percent pace from January through March. Spending on new equipment and software fell 1.0 percent, the first decline since the first quarter of 2003.

Companies added to stockpiles at a $52.6 billion annual rate last quarter after adding to inventories at a $41.2 billion pace in the first three months of the year. Inventories added 0.4 percentage point to GDP.

``Higher inventories could make producers nervous about the outlook in the second half of the year,'' Chris Rupkey, senior financial economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York, said before the report. ``If companies scale back their production plans then the economy will not be setting any speed records.''

Exports Strengthen

Slowing consumer demand in the U.S. and strengthening exports led to an improvement in the trade deficit. The gap narrowed to $627.1 billion from $636.6 billion in the first quarter. The narrowing added 0.33 percentage point to GDP, the first time in a year that trade has contributed to growth.

PPG Industries Inc., the world's second-largest maker of auto paint, said second-quarter profit jumped 21 percent to a record on higher prices and demand for coatings in Asia and Europe.

``Although growth is moderating to more sustainable levels in North America, we see continued economic expansion worldwide,'' PPG Chief Executive Officer Charles H. Bunch said in the statement. The company is based in Pittsburgh.

Residential housing construction fell at a 6.3 percent annual rate last quarter, the biggest decline since 2000, after falling at a 0.3 percent pace the previous three months.

The rate on a 30-year mortgage reached 6.78 percent last month, the highest in four years and up from an average of 5.87 percent in 2005, according to Freddie Mac. Rates have since risen further. Higher borrowing costs are reining in demand for housing that has been a mainstay of growth during the current expansion.

Refinancing Slows

Slowing home-price gains and higher interest rates are making it harder for homeowners to extract equity from their houses. Applications for mortgage refinancing have fallen by almost half the past 12 months, according to the Mortgage Bankers Association.

Higher energy prices are also siphoning cash from consumer pocketbooks. The retail price of a gallon of regular gasoline averaged $2.85 in the second quarter, compared with $2.34 the previous three months, according to figures from the Energy Department.

Cars and light trucks sold at an average annual pace of 16.4 million a month in the second quarter, down from 16.9 million a month in the first quarter, industry data show.

Dearborn, Michigan-based Ford Motor Co. reported an unexpected second-quarter loss as sales of sport-utility vehicles plunged amid rising gasoline prices.

Headwinds at Ford

``The headwinds we faced at the beginning of 2006 have only become stronger'' Chief Executive Officer Bill Ford said July 13 in a statement announcing plans to cut the company's dividend.

Sales at U.S. retailers unexpectedly fell in June, reflecting fewer purchases of autos, electronics and building materials, the Commerce Department said July 14.

Price pressures may start to ease as slowing growth relieves strains on factories and distributors. Companies are widening discounts to lure shoppers, which may also contribute to reduced price pressures, economists said.

Amazon.com, the world's biggest online retailer, plans to cut prices ``aggressively,'' Tom Szkutak, the company's chief financial officer, said this week.

In response to higher energy costs, Wal-Mart Stores Inc., the world's largest retailer, will do ``what we've been doing for years, sell for less,'' Chief Executive Officer H. Lee Scott said in a July 19 interview. ``As the customer pays that price for petroleum, energy, they have to save money somewhere.''

Fed's Outlook

Half of the 12 Fed districts, including San Francisco, the largest, reported a drop during the last month in the ``overall rate of economic growth,'' the central bank said in its regional survey, known as the beige book for the color of its cover. Housing markets cooled, and retail sales in most areas grew at a ``modest or disappointing'' pace.

The Fed on June 29 raised its benchmark overnight lending rate to 5.25 percent, the 17th straight quarter-point rise, and many economists expect one more increase next month before the Fed pauses. Interest-rate futures yesterday suggested there was a 42 percent chance the Fed will raise its target overnight lending rate between banks to 5.5 percent on Aug. 8, down from 54 percent odds the day before.

Government spending rose at a 0.6 percent annual rate last quarter following a 4.9 percent first-quarter increase.