September 29, 2018
Neil Irwin had a nice piece picking up an issue that I have raised repeatedly (e.g. here, here, and here). The slowdown in investment in 2015 and 2016 was primarily driven by a plunge in world energy prices. The more recent pick-up is mostly a result of the partial reversal of this plunge, not excitement over Donald Trump’s election.
The aspect of the issue that Irwin neglects to mention in this piece is that the plunge in energy prices in 2015, and its partial reversal the last two years explain most of the variation in real wage growth in the recovery, as shown below.
12-Month Change in Average Hourly Wage
Source: Bureau of Labor Statistics.
This flip side is important since it explains both why consumption was relatively strong in 2015 and 2016 and why real wage growth has fallen to near zero in the last year and a half.
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