Written by Steven Hansen
During the 1928 presidential campaign, Herbert Hoover promised “a chicken in every pot and a car in every garage.” The vast majority in 2017 can afford the chicken and the car.
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Chicken has roughly doubled in price since 1980 whilst the CPI has gone up 4 times. Chicken is still affordable.
Used car prices are falling (even using current dollars as the metric). [below graph is not inflation adjusted]
Even inflation adjusted new car prices have been trending down.
And the proof is that registered cars on the road are returning toward pre-Great Recession highs.
Based on spending, there is no indication that the median consumer is under duress until one starts looking at income. From Voxeu:
First, our data show that the bottom half of the income distribution in the US has been completely shut off from economic growth since the 1970s. From 1980 to 2014, average national income per adult grew by 61% in the US, yet the average pre-tax income of the bottom 50% of individual income earners stagnated at about $16,000 per adult after adjusting for inflation. In contrast, income skyrocketed at the top of the income distribution, rising 121% for the top 10%, 205% for the top 1%, and 636% for the top 0.001%
Combine what has been conveyed on the above chart [declining income of the lowest 50% of income earners relative to the top 1%] with the knowledge that the median consumer’s inflation adjusted income is still slightly below 2000 levels. From Sentier:
Median household income at the beginning of the great recession in December 2007 was $58,226, so we have now surpassed that level. The Sentier Household Income Index (HII) for February 2017 was 99.7, significantly higher than the January reading of 98.7 (January 2000 = 100). The level of real median annual household income in January 2000 was $58,918, which marks the beginning of this statistical series.
Source: Sentier Research
Putting It All Together It Does Not Add Up – Or Does It?
I am beginning to believe that the non-GDP economy is growing much faster than the economy overall. It could be enough to adjust GDP up 1% to 2%. After all, if you are shopping for clothes at the Salvation Army, buying existing homes, or visiting Shady Dan’s Used Cars – your spending is unnoticed in GDP. Add to it the evolution into the sharing economy with the likes of Uber, Airbnb, TaskRabbit, et al which is not captured in GDP.
If one is short income, you search for alternatives. With few exceptions, there is little evidence that the lower end of the population is going without as cheaper non-GDP sources abound .
Other Economic News this Week:
The Econintersect Economic Index for April 2017 improvement trend continues although the value remains in the territory of weak growth. The index remains below the median levels seen since the end of the Great Recession. Six-month employment growth forecast indicates modest improvement in the rate of growth.
Bankruptcies this Week from bankruptcydata.com: Privately-held Angelica (f/k/a Angelica Healthcare and Angelica Image Apparel), Privately-held Payless (f/k/a Collective Brands)
