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Lurking behind the consumer confidence numbers — weak wage growth

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Consumer confidence peaked in August, rising to their highest level since the financial crisis, when shoppers lost confidence in the economy.

The Conference Board Consumer Confidence Index rose to a reading of 92.4 in August, up from 90.3 in July and the strongest reading since October 2007. That’s good news, of course, as consumers drive the lion’s share of economic activity. But lurking behind those cheery numbers is a less-welcome truth: The job market is still mediocre.

While overall consumer confidence increased in August, the number of consumers anticipating higher incomes fell to 15.5% in August versus 17.7% in the month prior. More people also expected their wages to fall, too, with 11.9% of respondents expecting their pay to drop, versus 11.1% in July, according to the Conference Board.

“Looking ahead, consumers were marginally less optimistic about the short-term outlook compared to July, primarily due to concerns about their earnings,” said Lynn Franco, director of economic indicators at the Conference Board.

Consumers’ doubts back-up Federal Reserve chairman Janet Yellen’s ongoing concern: That there’s little wage growth happening and it’s continuing to hinder a full economic recovery.

Wages have barely kept pace with inflation over the past five years. Real wages have grown a tepid 0.5% since 2009, according to Bureau of Labor Statistics data. That’s the weakest growth since World War II. After past recessions, wage increases have averaged 9.2% during similar periods of recovery.

“The recent behavior of both nominal and real wages point to weaker labor market conditions than would be indicated by the current unemployment rate,” Yellen said in a speech to central bankers last week.

Even though the job market has been gaining steam — the unemployment rate has dropped to 6.2% and job gains this year have averaged a decent 230,000 each month — the recovery isn’t necessarily as robust as it appears.

Yellen is looking to improve wage gains as the new standard for the U.S. economic recovery. Until wages start to pick up, the Fed is unlikely to declare the economy healed and ready for higher interest rates.

The effect of stagnating incomes continues to spill over into the larger economy, weighing on the housing recovery and consumer spending.

Existing-home sales are predicted to be down 3% this year to 4.9 million from 5.1 million in 2013, according to the National Association of Realtors. Meanwhile, retail sales sputtered last month with their weakest reading since January.

Builders and retailers may not see much sunshine on the horizon, either. Until take-home pay picks up, higher consumer confidence is unlikely to translate into more dollars at the cash register.

In an economy where consumer spending drives about 70% of economic activity, suppressed wages will continue to drag on America’s post-crisis recovery.