7%, meaning paychecks are probably trailing inflation, said Lynn Reaser, chief economist at Bank of America's Investment Strategies Group." It can be assumed that this will lead to decreased spending by consumers.
The fact that wage rate increase is not staying up with the level of inflation along with the slow down in new jobs may have an additional effect on the lack of consumer spending and sluggish markets when it is coupled with the increasing price of gasoline. "Oil price, which hit a record high of more than $75 a barrel in late April, are now hovering above $71 a barrel. Gasoline prices have topped $3 a gallon in some areas" (Aversa).
The rate of unemployment also has a substantial relationship with the gross domestic product. Because people are anticipated to spend less money on goods in the near future, businesses will start to produce less goods to keep supply in line with the sagging demand. When business output remains stagnant or decreases, the need for additional workers also decreases. Therefore, if consumers move into more of a saving mode than a spending mode as anticipated, the rate of unemployment will not improve and could even begin to increase as the need for new workers is directly dependent on the rate of production needed to satisfy demand in the product market.
A stagnant unemployment rate and the small gains in the wage rate, however, generally have a positive effect on inflation. Because wage rates are not increasing and companies are not hiring more workers, companies do not have to pass the increased cost of labor off to the...
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