No Long-term Recovery without real Wage Growth
In my recent series, Economic Indicators during the Roaring Twenties and Great Depression, I concluded that the indicators that were studied from the Deflationary period of 1920-1950 suggested that this recession might bottom out in about Q3 2009. But with anemic wage growth to say the least, such a weakly based recovery might be doomed at birth to be short-lived.
All the deflationary recessions from 1920 - 1950 followed a pattern. The CPI declined from the beginning of the recession and its YoY rate of decline bottomed immediately before the recession’s end. M1 money supply followed a similar pattern, sometimes coincidentally, sometimes leading slightly. In all 6 of the deflationary recessions during the period of 1920-50, once M1 and CPI both declined at a decreasing rate, the recession was about to end.
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