Written by Steven Hansen
Over last weekend Econintersect issued its October 2012 economic index. The October index value had dropped precipitously – the largest one month drop since January 2009. However the index was not (yet?) indicating Main Street was in a recession. One reader offered an observation:
….that the middle class (say the middle 30 percentiles) have been in recession even while the economy has grown because of disparities in growth in income and the relative proportions of financial/business assets owned by the top say 10% compared to home values in 2006.
To understand the suffering/loss of many people a patchwork analysis is required. Totals (particularly without being on a per capita basis and by industry, employment type, education/skill level or age ), averages and medians (without quintile breakdowns) are meaningless to such large swathes of the population as to be meaningless in the “new normal”, “patchwork” economy.
To me, it seems that there is a lack of concern for a significant portion of the population enduring massive hardship, so long as the top level figures of GDP, S&P and employment are showing some growth in total (not by the author, but in the US as a gross generalization based on 4 years of generally intense reading of US centric blogs.)
A construction worker might have been at the 50th percentile in earnings before the recession, and now likely has fallen into the lower percentiles. Yet it is difficult to demonstrate this kind of issue with the data commonly looked at. Joe’s income seems relatively unchanged since the beginning of the Great Recession.
Per capita inflation adjusted income of employee compensation and transfer of payments
As the above graph removed rental & asset income, and did not adjust for taxes – the graph below is presented for comparison which is real inflation adjusted per capita disposable income. Your takeaway should be similar – Joe is about in the same place as before the Great Recession.
Now let us remove transfer payments (social safety net items such as social security, unemployment insurance payments and medicare) from Joe’s Income:
Per capita inflation adjusted employee compensation
With this view, Joe looks a lot worse off than before the Great Recession. Is it really the average Joe worse off – or is it specific Joes?
Indexed per capita inflation adjusted income for employee compensation (blue line) and Indexed employment population ratio (red line)
Likely our averaged and homogenized data is missing the point – the USA economy is screwed up because 8% of the pre-recession workforce has been vaporized (the red line on the above graph is currently at 92% of the pre-recession peak).
If one is on social security, in some other social safety net, employed, or the 0.001% – the new normal may not that bad. You may pity the jobless, but you may be missing the reality that 8% loss of jobs caused the economy to lose 8% of its prime driver – Joe “the consumer” Sixpack. With over 2/3rds of the economy consumer driven, the solution is obvious – create 24 million jobs.
Since the end of World War II, the economy has not been faced with such a large employment slack.
Fed Chairman Ben Bernanke sees this as the economic headwind which is causing terrible growth, and the stated reason for QE3. This author doubts that quantitative easing on top of a zero interest rate policy can have any effect on employment. It seems like a “hail Mary” play stemming from a lack of fiscal policy stimulus from Congress – and even a Hail Mary pass with no receivers down field, if you will.
Any solution to stimulate employment is in fiscal policy and regulation – and possibly a revisit to policy utilized post WWII to create jobs for the returning soldiers.
Other Economic News this Week:
The Econintersect economic forecast for October 2012 showed growth, but there was a serious degradation of the elements in the forecast. Overall, trend lines were broken to the downside. There is a whiff of recession in the hard data (plus certain surveys are actually at recession levels), with container imports contracting for three months in a row.
ECRI is still insisting a recession is here (a 07Sep2012 post on their website). ECRI first stated in September 2011 a recession was coming . The size and depth is unknown. The ECRI WLI growth index value is enjoying its sixth week in positive territory. The index is indicating the economy six month from today will be slightly better than it is today.
Current ECRI WLI Growth Index
Initial unemployment claims grew moderately – from 359,000 (reported last week) to 367,000 this week. Historically, claims exceeding 400,000 per week usually occur when employment gains are less than the workforce growth, resulting in an increasing unemployment rate (background here and here). The real gauge – the 4 week moving average – grew slightly from 374,000 (reported last week) to 375,000. Because of the noise (week-to-week movements from abnormal events AND the backward revisions to previous weeks releases), the 4-week average remains the reliable gauge.
Weekly Initial Unemployment Claims – 4 Week Average – Seasonally Adjusted – 2010 (blue line), 2011 (red line), 2012 (green line)
Data released this week which contained economically intuitive components (forward looking) were:
- Rail movements (where the economic intuitive components continue to be indicating a moderately slightly expanding economy).
- ISM services Business Activity sub-index, which has a good new normal track record in tracking the economy, grew strongly.
All other data released this week does not have enough historical correlation (foresight) to the economy to be considered intuitive, or is simply a coincident indicator to the economy.
Weekly Economic Release Scorecard:
BLS Jobs Situation Disturbing in September 2012
Monster: European Employment Continues Decline
Credit Cards Are More Cost Effective to Merchants Than Cash, Yet Processing Fees Still Too High
NFIB Says Job Growth Index Falls in September 2012 for Small-Business Sector
Infographic of the Day: 50 years of James Bond
October 6, 1982
First Time Unemployment Claims Down 9% Year-Over-Year
Attitude Check for Investors
Insurers, Some States and Co-op Plans Moving Forward with Obamacare
China: A Lending Giant Without Money?
September 2012 FOMC Meeting Minutes – The Story of QE3
Rail Week Ending 29September2012: Intermodal at 2012 High
Manufacturing New Orders Is a Disaster in August 2012
CoreLogic Reports August 2012 Completed Foreclosures Down Again
29September2012 Unemployment Claims: Hardly Any Change from Last Week
ECB Holds Rates Steady, Press Conference
Challenger September 2012 Job Cuts Remain Near a 21 Month Low
Infographic of the Day: ADP September Jobs Better At Second Glance
Stock Investors: How to Hedge the US Dollar
September Tax Withholding Revisited
Analysis: Polandâs Balancing Act
The Real Story of Unequal Taxation and Income
Survey: Construction Contractors Favor Romney
First Ever Crowd Funded IPO
Who’s Been Bidding Gold Higher?
Advertised Vacancies Rose 128,600 in September 2012
September 2012 ISM Services Index Improves Moderately
Fed Survey Lists Global “To Big To Fail” Banks
September 2012 ADP Jobs Up a Solid 162K
Infographic of the Day: Social Media and MBA Programs
The Great DebateÂ©: Deficits, Robert J. Samuelson vs. William K. Black
National Government Debt Dynamics- Causes and Policy Options
Get 4% Yield, Cheap
Obamacare: Some States Can’t Figure it Out
Australia: Central Bank Cuts Interest Rates
Social Security 2012 Update from Congressional Budget Office
August 2012 CoreLogic Home Price Strong Improvement – Now Up 4.6% Over Last Year
August 2012 Philly Fed Leading Index Projects Positive Economic Growth
China Slowdown – Effect on China’s Trading Partners
Infographic of the Day: Would You Give Up Salary to Be Able to Tweet?
Stratfor: Salafism and Arab Democratization
Average Gasoline Price Falls $0.023 Week Ending 01 October 2012
Should the U.S. Have a Strategic Gasoline Reserve?
Strong September Tax Withholding Bodes Well for Jobs
This Week: Politics, Crisis, Employment and All the Rest
August 2012 Private Construction Spending Very Soft
September 2012 ISM Manufacturing Survey Shows Economy is Expanding
Earnings Opportunity Season
Who is Confused: Consumers or Consumer Observers?
The Best Place to Look For Income Today
Pretense of Knowledge: Logic Contradicted by Empirical Facts
Investors’ Long-term Quandry
Economic Forecast October 2012: Huge Decline, Fundamentals Degrading
Insider Trading 28 September 2012: Insider Buying Declines for Third Week
The Week Ahead: Debate About Jobs
The Fed: Itâs Neither Impotent nor Omnipotent but Has Political Limitations
Banks are Setting Us Up for Another $2.6 Trillion Hit
The Week That Was, 29 September 2012
Trefis: Highlights Week Ending 28 September 2012
Is Santa Claus Bringing 1 Million Jobs for the Holidays?
Energy Efficiency in Buildings: Are we Doing Enough?
Bankruptcies this Week: Southern Air Holdings, Tweeter Home Entertainment Group, B+H Ocean Carriers, Bakers Footwear Group