August 20, 2008

Consumer squeeze...

Last week, Yahoo Finance posted an article about expected FY2009 raises. More specifically, the article highlighted how more and more companies are implementing policies where high performers receive much higher raises then average or lower performers. My employer has had this type of policy for years.

The following table is from article (courtesy of Yahoo Finance) -

While the average is around 3.8%, the article states that the range from high performers to low performers is 5.6% to 0.6%. The purpose of this post is not to discuss the "pay for performance" model, but to discuss the expected average FY2009 raise versus current inflation.

Last week, the BLS released the most recent CPI numbers which showed an annual inflation rate of around 5.6%. Some experts even suggest that the BLS inflation numbers are artificially low. For argument's sake, let's assume the BLS numbers are accurate. This means that is real terms, the average employee will be about 2% less well off in FY2009 as they were in FY2008 (assuming the above numbers are correct and inflation holds steady at these levels).

Talk about consumers being squeezed... Not the type of news that is needed given the state of the housing market and spill over into equities.