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US Cannot Raise Income Levels

US Cannot Raise Income Levels US Cannot Raise Income Levels

In her Republican response to the State of the Union address, South Carolina Gov. Nikki Haley expressed criticism of President Barack Obama’s stewardship of the economy.

“The president’s record has often fallen far short of his soaring words,” Haley said. “As he enters his final year in office, many Americans are still feeling the squeeze of an economy too weak to raise income levels,” Politifact reported.

“We decided to check whether, six years into the economic recovery, income levels are still in the doldrums.”

Haley is basically correct if you look at Census Bureau data for median household income, adjusted for inflation. Here’s the trend line in recent years. Inflation-adjusted, median household income has fallen from $57,357 in 2009 to $53,657 in 2014, the most recent full year available.

That’s a decline of 6.4% over a five-year period once inflation is taken into account. Obama himself seemed to acknowledge this trend when he spoke about “more and more wealth and income” concentrated at the top and “squeezed workers.”

 Moving Sideways

The only silver lining for Obama is that median income has increased a bit since the first full year of the recovery–2010–and saw a tangible bump between 2012 and 2013. Still, at best, median income is moving sideways, a result strongly at odds with the much better record of job creation and unemployment reduction under Obama.

There are alternative ways to measure income, such as earnings from work, but these show growth that’s tepid at best.

For instance, median weekly earnings of full-time wage and salary workers rose from $776 in 2013 to $791 in 2014, which is less than a 2% increase, or roughly in line with inflation.

Haley said the economy is “too weak to raise income levels.” While the economy under Obama has made significant strides in such areas as job creation, income has not been an area of significant improvement. Median income is lower now compared to 2009. It is, however, slightly up from its low point in 2012.

 Weakness Evident

A practically unnoticed phenomenon underpins the negative US economic data trends we saw in Q4 2015 and the enormous increase in market volatility in the first week of 2016: The United States’ global competitors are—once again—using vast pools of low-wage, underutilized labor, a huge excess of domestic production capacity, and/or the ever-stronger US dollar, to grab whatever share of demand they can in order to maintain/recover growth in a sluggish global economy, the Business Insider reported.

While the plummeting price of energy—the result of insufficient global demand and huge new oversupply from North America itself—has cut America’s energy deficit to a level less than 20% of its 2008 peak, the overall current account deficit of the US grew rapidly in 2014 and, more alarmingly, in 2015.  The nation’s current account is the sum of the balance of trade (goods and services exports less imports), net income from abroad and net current transfers.

But here’s the brutal bottom-line: The non-energy portion of the US current account deficit, relative to GDP, has ballooned by 236% since its low in December 2013, during which period the energy deficit fell by 57%.

 Lowflation

The US economy is showing weakness in ‘nearly everything but employment’ and even its salutary pace of job formation is plagued by an unusual level of temporary and low wage hiring, painfully low labor force participation and very low levels of nominal wage growth.

Consumption is therefore not rising in a manner anywhere near the rise in headline job formation. And the demand-push inflation that one would normally expect to have emerged with the creation of 5.6 million jobs over 24 months, is nowhere to be found.  In fact, the US is joining the rest of the world in a persistent pattern of alternating deflation and disinflation (lowflation).

 Bitter Pill

The substantial slowdown in China, the evident failure of Abenomics in Japan, the collapse of the Brazilian and Argentinean economies, and a failure of the Eurozone to get off the mat despite the “anything it takes” monetary posture of the European Central Bank, have all contributed to declining global aggregate demand for all sorts of production. This has been reflected particularly acutely in the energy and other commodities sectors.

All of the foregoing constitute a bitter pill for the United States economy which, better than any other, was able to substantially reduce its trade deficit from the end of the recession through 2013 and to lever its size, its willingness to engage in extraordinary monetary easing early and often during and following the Great Recession, and its inherent resiliency, to produce at least a tepid recovery while other regions slowed or remained mired in slump.

Financialtribune.com