Chart of the day: US Real Personal Income Growth
The ECRI released the following chart on the year-over-year growth in US real personal income.
The takeaway here is that personal income growth is seriously flagging going into the fiscal cliff which promises to turn income growth decidedly to income contraction.
For the last three months, year-over-year growth in real personal income has stayed lower than it was at the beginning of each of the last ten recessions. In other words, this is what personal income growth typically looks like early in a recession.
Has personal income growth ever remained this low for three months without the economy going into recession? The answer is no.
While the ECRI are using this in support of their recession thesis, recession is a lagging indicator which is useless for planning purposes. Year-over-year rates of change in leading indicators are the critical factor. Consumer spending makes up two-thirds of the US economy, driving the rate of economic change more than any other variable. The sequence goes: consumers’ real hourly earnings to consumer spending to industrial production to capital spending to corporate profits – that is without consumption support from debt accumulation, government transfer payments and tax breaks.
Employment and business spending are lagging indicators and are not drivers of the business cycle at all. Companies cut investment in human and physical capital as a result of a slowdown in the rate of change in consumption.
Conclusion: the US economy cannot grow for very long if real personal income is decreasing.
Well, to prop this, we’ve still got some fading stimulus, but the bigger impact of late I think is the fall in the saving rate, and the growth in consumer credit (revolving and installment, not mortgage.) Both of which are quite frankly, absurd things to be seeing at this point. But the credit gain to some extent is desperation. Revolving to pay bills, installment to go back to school because there are no jobs. And the saving rate could reflect net worth gains from the first quarter. But it also might signal budget stress.
Another plus was that debt service costs were going down, except now they aren’t so much because the refi game is mostly over.
Costs of essentials for medical energy and food is now near a record high as a % of total income. Woops, that can’t be good. But Ben says it’s transitory. Ha.
Interest income keeps falling, and has no upside with zirp, and boomers are retiring into that, if they are retiring at all.
Dividend income disappears when stocks get hammered, and that looks like where we are heading. More trouble for income.
And of course, wage compression, as people lose jobs and have to take whatever they can get, which typically pays less and has fewer benefits, so more out of pocket expense comes along.
It’s not hard to see why so many households are struggling. Save for the upper tier, who are McLovin it mostly. Their stocks are back up, the home prices in their regal neighborhoods hardly went down or just kept going up. Joy! And bonuses all around! Woot!
It’s good to be the king.
It will also explain why the US economy will bounce along very weakly for the next decade until the debts are cleared. So Edwards conclusion is spot on.