Written by Steven Hansen
This week Sentier Research released the January 2015 inflation adjusted median income index showing median incomes are continuing to rise. One should realize that there is a tailwind to real median incomes – the dramatic fall of the consumer price index.
According to Gordon Green of Sentier Research:
Even though there was not a statistically significant increase in median income between December and January, there has been a general upward trend in median income since the low-point reached in August 2011. Our time series charts clearly illustrate that although the economic recovery officially began in June 2009, the recovery in household income did not begin to emerge until after August 2011. A significant factor contributing to the trend in median income has been the sharp decline in the Consumer Price Index (CPI) in recent months, largely due to falling energy prices.
One should note from the above graph that there was little change in median incomes during most of the 21st century, and then the Great Depression caused a dramatic decline which did not begin to recover until mid-2011. This recovery is not yet complete. I would assume in a few months the median income index will begin to decline as energy price rises will creep into price indices – all other things being equal (the infamous ceteris paribus assumption).
The growing lack of inflation will be a tailwind for 1Q2015 real GDP also – countering the softness in consumer spending and corporate investment.
There is a significant difference in growth rates between real median income and personal income – personal income is near historic highs relative to GDP. Although there are several logical explanations, the most dominate is that the upper end of the income earners are sucking in large income gains and not much is added for the “masses”.
There is also a difference between between personal income and corporate income:
These last two graphs are imperfect examples of trickle down economics not working (there are no perfect examples). The rich and the corporations do not share or trickle much to the median household. I do not believe in trickle up or trickle down – but do believe in level playing fields. These graphs are enough evidence to show the playing field is not level – the question going forward is how to level it.
Other Economic News this Week:
The Econintersect Economic Index for March 2015 continues to show a decelerating but growing economy. All tracked sectors of the economy are expanding – but most sectors are showing some slowing in their rate of growth. The negative effects of the recently solved West Coast Port slowdown (a labor dispute which had been going on for months) can be seen be seen in much of the raw data – and it will be an economic drag on 1Q2015 GDP. Although beyond our forecast view, we expect a slight economic bounce in the coming months as a trillion dollars annually of cargo begins to traverse the West Coast Ports normally.
The ECRI WLI growth index value crossed slightly into negative territory which implies the economy will not have grown six months from today.
Current ECRI WLI Growth Index
The market was expecting the weekly initial unemployment claims at 290,000 to 305,000 (consensus 300,000) vs the 320,000 reported. The more important (because of the volatility in the weekly reported claims and seasonality errors in adjusting the data) 4 week moving average moved from 294,500 (reported last week as 294,500) to 304,750. The rolling averages have been equal to or under 300,000 for most of the last 6 months, but this week exceeded this number.
Weekly Initial Unemployment Claims – 4 Week Average – Seasonally Adjusted – 2011 (red line), 2012 (green line), 2013 (blue line), 2014 (orange line), 2015 (violet line)
Bankruptcies this Week: University General Health System (UGHS), Cal Dive International, AtheroNova and subsidiary, AtheroNova Operations, Sport-Haley Holdings