Companies charging more but not raising their workers' pay.

Companies including FedEx Corp. and Procter & Gamble Co. have begun to raise prices as demand for their products strengthens.

U.S. workers aren't enjoying the same ability to win pay increases.

A 2.2 percent rise in wages in the 12 months through May has been more than offset by a 3.1 percent gain in consumer prices. This disparity between pay and prices has political implications as President Bush tries to capitalize on the economy's addition of 1.2 million jobs this year, the best five months of job growth since 2000.

"The stagnation in wages leaves open a big target" for Democratic challenger John Kerry, said analyst Thomas Mann of the Brookings Institution. In terms of pay, "a lot of Americans have been left behind," he said. "Kerry now has an opportunity to ask, 'Are you better off now than you were four years ago?'"

The answer is no, according to Chad Maurer, a 31-year-old Rockton, Ill., machinist. Maurer said his pay has risen 5 percent since 2000. Consumer prices have risen 8.3 percent in that time, and his share of premiums for the medical insurance his employer provides has surged by more than 60 percent. Though he makes $17 an hour now, he says he can't buy as much as he did in 2000.

"We're trimming our discretionary spending--eating out less often, for example," Maurer said. He said he asked managers at the machine-tool company where he works for a raise and was told the company couldn't afford it. "I'm not expecting one," Maurer said, "but if I don't get a raise soon, I'm going to have to start looking for something else."

Shortfall in personal income

After accounting for inflation, wages and salaries have been growing less than a third as fast as they did after previous recessions, Stephen Roach, chief economist for Morgan Stanley & Co. in New York, said in a note to clients. The rise in pay this time is "far short of the nearly 10 percent gains that occurred in the first 29 months of the preceding six cyclical recoveries," Roach wrote. "This translates into a shortfall of $280 billion in 'missing' real personal income."

Even with the recent surge in jobs, the economy has had a net loss of 1.5 million jobs during Bush's term, including 2.9 million manufacturing jobs, which typically pay more than the service jobs that account for most of the positions now being added.

Still, the nation's gross domestic product, the value of all goods and services, expanded 5 percent in the 12 months ended in March, the most since 1984. GDP grew by 4.4 percent in the first quarter, up from 4.1 percent in last year's fourth quarter.

As the economy grows, some companies are finding it easier to boost the money coming in than workers are. Caterpillar Inc., the world's biggest maker of earthmoving equipment, and consumer products maker Procter & Gamble are among the companies that have announced price increases in recent weeks.

FedEx has succeeded in imposing surcharges--temporary price increases--in a market where passenger airlines have run into buyer resistance. FedEx's freight division increased its rates 5.9 percent May 24 because of higher costs to expand and operate its fleet.

"Companies have pricing power, but workers don't," said Barry P. Bosworth, a Brookings Institution economist who helped administer the Nixon administration's wage-price controls in 1971 and 1972.

Karen Kenny, a 44-year-old secretary from Moon Township, Penn., said she and her husband don't feel the same optimism about the economy that the White House and companies do. "Even though we have jobs, the price for gas and other things is going up and it's taking a toll on our budget," she said. "We're not looking to do anything extravagant--just make ends meet."

Joel Popkin, a former senior Bureau of Labor Statistics economist now working as a private consultant, predicts that wage increases will remain at 3 percent or less in nominal terms--before accounting for inflation--for the remainder of this year and into early 2005.

The 2.2 percent rise in average hourly earnings for the 12 months through May, up from a 1.6 percent rise for the same period ending in February, has some economists predicting that wages will have a more significant impact on the economy.

With a 2.6 percent rise in the cost of employee benefits, businesses had to pay 0.8 percent more in labor costs for each unit of production in the year through May.

"It's very clear that the benefits of the growing economy are going largely to profits, not wages," said Jared Bernstein, an economist at the Economic Policy Institute, a labor-backed research group. "You've got people crowing about wage growth when it's falling behind inflation. It makes no sense."

ART PINE

Bloomberg News