Posts filed under “Wages & Income”
Improved savings rate? Not exactly.
Mark Warywoda of Addenda-Capital.com up in Canada offers up some thoughts on why we should not read too much into the recent improvement in Savings Rates:
“So far, all we have had is a two-quarter bump up in personal savings rates — that is trivial related to the outstanding debt burden. The debt-to-income ratios have barely budged, given that income had fallen at the same time that spending had fallen.
How is it was possible that debt-to-income ratios hadn’t improved much when the savings rate had gone up to 5%. The short answer is it comes down to the simple equation: Savings = DPI – personal outlays.
A true savings rate should compare personal outlays to only the portion of personal income that’s actually spendable (ex supplemental benefits). A savings rate computed on that basis remains stubbornly very negative. And debt burdens remain atrociously high, at a time when incomes and asset values remain under pressure.
Until about 1970, personal outlays (dominated by Personal Consumption Expenditures (PCE) (96.6%), but also including interest payments and transfer payments) were consistently held under the amount of cash receipts — but not in recent decades.”
And a few charts that demonstrate this:
While the official personal savings rate has always been positive, though trending down over time since 1982 until 2008, the unofficial personal savings rate has trended down since WWII, turning negative in the 1970s, and exceeding -10% for much of the 2000s . . .
Debt Growth Relative to Economic Growth Economic growth has increasingly relied on debt growth. The government is trying to preserve economic growth by levering up to fill the void left by private sector deleveraging. But will it be able to do so for as long as house-holds need to continue to delever? Consumerssumers over- consumed for years (because they could — because of housing “wealth”, MEW and excessive leveraging). Leverage allowed consumers to, over the course of the decade, basically get a bonus year’s worth of spending relative to pre-2000 historical spending norms.
Good stuff . . . thanks, Mark.
Two interesting front page articles this morning expand on several of our favorite themes. The first, the NYT’s A Reluctance to Spend May Be a Legacy of the Recession, treads over some well worn ground with anecdotes and data. The anecdotal stuff is the usual mix of sad tales, and psychology, some signs of improvement…Read More
Don’t get too bent out of shape over the bigger than expected drop in income in June.
It was the biggest drop in 4 years, but it came on top of the big May stimulus, which helped income surge 1.3%.
Back out govvie largesse, and the 2 months net out to more or less flat . . .
NOTE: Market Talk adds that personal income is down $453B since June 2008.
Nice couple of charts that show correlation between what occurred when financial markets were deregulated and the outsized compensation packages that subsequently followed. The book does a nice job showing how one led to the other — that there was both Correlation and Causation. > chart via NYU ~~~ Here is a similar chart, with…Read More
Source: BLS > So much for the green shoots: Let’s take a closer look at the 467,000 job losses in June: • Recession Job Losses = 6.5 million since December 2007; • Total number of unemployed persons (14.7 million); from the start of the recession, the number of unemployed persons has increased by 7.2 million;…Read More
Its tine for everyone’s favorite monthly data point, Non-Farm Payrolls. For those of you who are relatively new to the site, here is a brief description of how our analysis has evolved over time. • Weak Jobs Recovery: Following the 2001 Recession, the economic recovery, from a jobs perspective, was rather weak. Indeed, from 2002-07,…Read More
I am especially pleased to introduce today’s Think Tank guest, Economist David Rosenberg of Canada’s Gluskin Sheff. For most of you, however, David needs no introduction: A 20 year veteran of the Street, David most recently was Merrill Lynch’s chief North American Economist, where he correctly warned about the Housing and Credit Collapse and Recession in advance.
With Non-Farm Payroll scheduled to be released tomorrow, the timing is perfect to hear some thoughts from David about Employment . . .
A survey conducted by YouGov for the Economist magazine found that 5% of respondents had taken a furlough this year and 15% had accepted a pay cut (see The Recession and Pay: The Quiet Americans on page 33 of this week’s edition).
As wages deflate, workers are looking for ways to supplement their shrinking income base, for example, by moonlighting. Indeed, a poll undertaken by CareerBuilder.com and cited in the USA Today found that one in every ten Americans took on an extra job over the last year; another one in five said they intend to do so in the coming year. These numbers are double for the 45 to 54 year olds who now see early retirement, once around the corner, as an elusive concept.
Most pundits who crow about green shoots and about an inventory restocking in the third quarter giving way towards some sustainable economic expansion live in the old paradigm. They don’t realize, for whatever reason, that the deflationary aftershocks that follow a post-bubble credit collapse typically last for 5 to 10 years. Businesses understand better than the typical Wall Street or Bay Street economist and strategist that everything from order books, to output, to staffing have to now be restructured to adequately reflect a permanently lower level of leverage in the economy.
Indeed, by our estimates, there is up to another $5 trillion of household debt that has to be eliminated in coming years and that process is going to require that consumers go on a semi-permanent spending diet. Companies see this, which is why they are not just downsizing their payroll, but have also cut the workweek to a record low of 33.1 hours. Fewer people are working and those that are still working have seen their hours dramatically cut this cycle.
Companies are finding other ways to save on the aggregate labour cost bill as well, which may be a factor reinforcing the uptrend in the personal savings rate (see more below). For example, a rapidly growing number of employers are now suspending contributions to worker 401(k) plans. According to a joint survey by CFO Research Services and Charles Schwab, nearly 25% of U.S. companies have either suspended their plans or are planning to do so (this is up from 2% at the turn of the year). Again, how we end up squeezing inflation out of the system when the labour market is clearly deflating wages and benefits for the 70% of the economy called the consumer is going to be interesting to watch.
We can’t let a Friday go by without something Employment/Income related. Hence, this lovely BEA chart, showing changes in personal income by state: The data for Q1 — yes, it is both old and lagging — is still stunning nonetheless: 74% of the states showed a drop in Personal Income. > Personal Income Changes, by…Read More