American income by race. (Source: Center for American Progress)
By Laura Conaway
In its "Economic Snapshot for September 2009," the Center for American Progress reels off a list of statistics that are now way, way too familiar. The economy has lost 6.9 million jobs since the recession started in December 2007. People who lose their jobs are staying unemployed for record periods. Poverty is on the increase, employer-provided benefits on the decline.
Median household income, adjusted for inflation, fell by $1,860 from 2007 to 2008. But look under the hood and you'll find great disparity among American families. White family income stands at a median of $55,530, while the African-American family median is at $34,218. Hispanic families are faring only a little better, at $37,913.
Next up for the American economy? Trouble with debt, of course. Home foreclosures keep rolling in, with 9.1 percent of all mortgages delinquent and 3.9 percent in foreclosure. Of all credit card debt, 9.6 percent is in default. That's up 126.6 percent from the fourth quarter of 2007.
Median household incomes fell by in 2008 by 3.6 percent, to $50,303, the U.S. Census Bureau reports. The poverty rate hit an 11-year high at 13.2 percent, up 0.7 percent. Some 39.8 million people were classed among the poor last year, up by 2.6 million. The ranks of Americans without health insurance grew to 46.3 million, from 45.7 million -- a small enough increase to leave the percentage unchanged at 15.4 percent.
Personal income decreased $159.8 billion, or 1.3 percent . . . in June.
Personal spending rose from May to June by $41.4 billion, or 0.4 percent. The bureau's price index shows a .5 percent increase in June, versus .1 percent in May. If you exclude the volatile costs of food and energy, prices increased .2 percent versus .1 percent in May. "This should help temper any near-term inflation fears," writes Marc Chandler of Brown Brothers Harriman.
The BEA pins the monthly fall in income on the American Recovery and Reinvestment Act, otherwise known as the $787 billion stimulus, which called for a one-time $250 check to Social Security recipients in May.
Wages and salaries, as a category, notched a tenth straight monthly decline, falling by .4 percent in June.
Overall wages and benefits grew by a mere 0.4 percent in the second quarter, the Bureau of Labor Statistics reports. True, it's not a negative number, as we saw with gross domestic product this morning. But that 0.4 percent is unsettling.
It comes as the final number in a year when compensation costs for private industry workers grew by 1.5 percent over the year before. BLS says it's the smallest change in the Employment Cost Index since it began in 1980.
Wages and salaries grew by just 1. 8 percent for the year ending June 2009, compared to 3.1 percent for the year ending June 2008. That means wage gains have been cut in half, and many people are taking home less. "As long as this lasts it is very hard to see
anything but downward pressure on core inflation," writes economist Ian Shepherdson.
Today, the Federal Reserve released the Beige Book, a regular summary of what each of the different Federal Reserve banks are seeing in their local economic scene. Overall, the Beige Book says the recession has begun to taper off. But toward the bottom of the summary, there's one big, scary money quote:
Boston, Cleveland, Richmond, Chicago, Dallas, and San Francisco cited a range of methods firms are using to limit compensation, including cutting or freezing wages or benefit contributions, deferral of future salary increases, trimming bonuses and travel allowances, reducing hours, temporary shutdowns, periodic furloughs, and unpaid vacations.
No matter how you spin it, companies are trying to pay employees less money. As we've talked about before, falling wages are a key ingredient in deflation. Still, we haven't seen the other factor in deflation: falling prices.
The minimum wage goes up today, from $6.55 to $7.25. By this time, the economic arguments for and against are so boiled down, they're practically condensed. On the pro side:
The minimum wage hasn't kept pace with inflation and carries less buying power than 40 years ago. // Minimum wage workers tend to spend the money they get, so the raise will move right back through the economy. // The increase affects just under five percent of all employees, so it's not a big deal.
On the con side:
By imposing a minimum wage, the government is setting an artificial price on labor instead of letting the market decide. // Businesses struggling through the recession can't afford to pay their workers more. // Increasing the minimum wage has an inflationary effect, as it causes other wages to rise, too. // Hiking the minimum wage hurts younger workers, the biggest single group at the bottom, and because employers will tend either to trim those jobs or fill them with older, more experienced workers whom they perceive as worth the extra money.
But in all our conversations about the minimum wage, here's the one bit that has stuck with me -- and I'll warn you that it's a weird paradox of a thing:
The folks at the Bureau of Labor Statistics have released their County Employment and Wages Summary, and it looks like good news for people living in the city of St. Louis. According to BLS, from 2007 to 2008, average weekly wages in that city (which confusingly is also a county) rose from $962 to $1,508 -- a whopping 56.8 percent. That's a gigantic jump compared to the rest of the country. The next-highest wage increase, in Clayton, Ga., is only 9.9 percent, and the U.S. average rose only 2.2 percent.
But city officials call the number a recession-induced aberration. The bump came because several area companies, notably brewer Anheuser-Busch, downsized and offered thousands of laid-off workers a series of buyouts and severance packages.
One effect of the recession, as you can see from this chart, was that food prices fell from their record highs during mid-2007 to mid-2008. Now, according to the United Nations' Food and Agriculture Organization, food prices are starting to grow again. The 6 percent increase in between April and May is the second-highest jump since the FAO began to track the numbers in 1990.
FAO economists have said that food commodity prices usually strengthen with a general economic recovery, so this could be a positive sign for the economy. If food prices continued to rise this fast, it would be bad news for people on the margins, who suffered when prices peaked last year. The Organization for Economic Cooperation and Development warns that "[F]ood insecurity and hunger is a growing problem for the world's poor."
With the news that Congress is considering taxing workers on the value of their health benefits, the rest of the America is wrestling with a proposal that's standard procedure for families like mine.
In my continuing quest to prove that economics must be about more than bond yield spreads, I come to this, from economist Russ Roberts. He's writing on Cafe Hayek, his blog, about the story of a Nepalese man who can do 1,001 handy things and yet earns in a lifetime what a "very unlazy, untalented American" might earn in a year.
Why can the American afford so much leisure? The answer is that he has more people to trade with, people who bring more capital and skill to the table. I know nothing about goats, thatched roofs, or alarm clocks. I know a reasonable amount about economics, a skill that is virtually worthless in Nepal. And yet I live like a king relative to the cook in Nepal. I live like a king relative to my great-grandfather who may have been smarter and may have been able to do many things I can never imagine doing. The fundamental reason that is so is because I benefit from the division of labor. By specializing in economics, I am able to leverage the skills of other people who are specializing. It is their specializing, and the opportunity to trade with them, that makes it rational and gloriously pleasant to specialize in economics.
It's not really about his particular specialty, of course. It's more that like many (most?) readers of this blog, Roberts lives in a developed economy, where the specialization of labor is the norm. It provides for a higher income and better housing and medical care, for instance, even if it means you likely don't know how to fix your own roof.
Inflation is falling at the fastest pace in more than half a century, the Labor Department reported today. The Consumer Price Index has fallen .4 percent over the past 12 months. If you're worried about deflation, consider that core inflation -- which excludes food and energy -- chimes in at 1.8 percent over that same period, .2 in the last month. Which is better than zero.
Led by a steep decline in dairy, food prices fell .1 percent last month. This has been a lousy time to be selling much of what's grown on farms. Alan Cordova has tracked the drop in agricultural prices, with a particular eye to the effects on our daily bread. After the jump, his own "bread/wheat multiple" and what the heck it means.
Add this chart to our ongoing talk about the savings rate. The message here, based on data from the Federal Reserve, is that Americans have continued spending and spending and spending -- until very recently.
Part of the problem is that people keep defining up what "maintaining a middle class lifestyle" means.
Cable TV? There goes at least $600 a year. Everyone in the family with cell phones? Another $1200 or so. Eating out often? Or buying prepared food? Driving a less than 5 year old car? Gym memberships? Netflix? Video game systems? Broadband internet access? Add five to ten grand a year more for those, easily. How about a larger than 1,500 square foot home for a family of four? That has never been considered "middle class" until the past decade or so.
The car's for sale in Marks, Mississippi. Sarah Goodyear
I got home to Mississippi with my family last week, for the first time in a couple of years. We covered a bunch of ground in a very short while.
When you grow up in a place like Mississippi, you get used to being last in everything good and first in everything bad. You're the fattest folks, the earliest-dying folks, the least-educated folks. Your schools don't have enough books or chairs. Your schoolmates have babies, sometimes a couple of them.
Given the state of the rest of the world, I expected to find Mississippi in tatters. But a funny thing happened between New York and home.
It seems some of us may need a stimulus to return to healthy eating.
Fast-food giant McDonald's said yesterday its U.S. same-store sales increased 6.8 percent in February, excluding the calendar shift from last year's leap year. Worldwide same-store sales grew 5.4 percent by the same measure. McDonald's chalks the U.S. growth up to "the strength of the chicken line-up, the core menu, particularly the Quarter Pounder, as well as beverages and our market-leading breakfast."
Has your appetite for the fast stuff changed with the economic downturn?
With the ranks of the unemployed swelling and domestic opportunities sparse, job-seekers may need to look far afield for their next gig. For those willing to venture down under, the Queensland, Australia, government recently began advertising The Best Job In The World -- "taking care" of a tropical island near the Great Barrier Reef.
This is a brand new business in Kenosha, Wisconsin, just opened today, Jan. 11, 2009. I like that it advertises that you can get up to $20,000 today.
According to its website, the Cash Store offers cash advances, installment loans and title loans with no credit report required. The number of businesses offering these so-called payday loans has ballooned in recent years. Just last week I noticed a new cash advance store in our neighborhood, on 43rd St. between 5th and 6th Avenue, right in the heart of Midtown Manhattan.
In a recent column for Bloomberg, Michael Lewis offers his advice to a young banker thinking about leaving a well-known New York bank.
What Wall Street did so well, for so long, was to give people jobs that they could pass off to themselves as well as others as callings. Such was their exalted social and financial status: Wall Street jobs made people feel special without actually having to be special. You never really had to explain why you were doing it -- even if you should have. But really, the same rule that applies to properly functioning financial markets applies to other markets: There's a direct relationship between risk and reward. A fantastically rewarding career usually requires you to take fantastic risks. To get your seat at the table on Wall Street you may have passed through a fine filter, but you took no real risk. You were just being paid, briefly, as if you had. So which is it: job or calling?
Anyone else feeling like this banker -- considering a career change?
Homeless people Los Angeles stand to get an upgrade from the cardboard boxes. The LA Times reports on Christopher Raynor's new personal pod:
Until a few weeks ago, he dozed on a thin mattress in the open air. Now he beds down in a snug mobile shelter called an EDAR (short for Everyone Deserves a Roof), a covered contraption that looks like the offspring of a shopping cart and a pop-up camper.
Two links today from listeners about the global economic crisis finding its way to Main Street.
The Washington Post reports that D.C.'s Metro transit system -- and dozens of others around the country -- are having to pony up billions to banks. Their loans were tied to the fortunes of AIG, and we all know how that went. (H/T and dose of outrage: The Bellows.)
Rutherford, N.J., has frozen spending "on everything from seminars in Atlantic City to paper clips at borough hall until further notice." That's from the South Bergenite, which has been following a collapsed development deal in the Meadowlands. Rutherford faces lost revenue of at least $500,000.
I would either stay in New York City -- where we can bike/walk everywhere, grow vegetables on the roof, fish and keep writing -- or I would move to a yurt in Maine for all the same reasons.
Alex Blumberg sends over this bit from one of our favorite sites, Calculated Risk. It looks at a report about home values and comes up with a whole new worry. Namely, it's that if your house is now worth less than you owe on it -- hello, negative equity -- you're not in a position to sell it and move when opportunity knocks. CR writes:
If approximately 1 in 6 households (the same proportion as with negative equity according to Moody's) will not accept a transfer now because of depressed home values that would be almost 300,000 households per year that will be reluctant to accept job transfers.
While I'm at it, NPR has a story today about a woman who saves a gamillion dollars on her grocery bill by clipping coupons. To each his or her own, but at my house we save money by not buying the kind of groceries that come with coupons. I've yet to have anyone offer me a coupon for a head of broccoli or a whole chicken at the farmers market. I do think I'm generally better off with those choices than with packaged anything.
On a related note, here's the best financial advice I've had in years, courtesy of my mother: Eat from your own pantry. Shop in your own closet. Entertain in your own home.
Economist Amir Sufi told us on the podcast yesterday that he's worried about the collapse in consumer spending, which he notes began in August -- before the worst of the credit crunch.
Over on CNN, citizen journalists are talking about moving to smaller houses, taking their kids out of extracurricular classes and giving up their cars.
I have to say, I am so with them on this. We were saying in my house just last night that we've almost stopped buying things, whether it's workday lunch out or a new pair of shoes. Even if we have the money at the moment, we don't spend it.
Here's a neat mugshot slideshow of what embattled Wall Street titans raked in just a few short months ago. What's that you're saying about limits on executive pay?
Greenwich, Conn., land of the seriously galactic bank accounts, giant homes and only slightly less giant caretaker cottages, is feeling a little touchy right about now.
The Wall Street Journal says the East Coast bastion of wealth is waiting for hedge funds to catch the bailout flu. The paper quotes Democratic pol Ned Lamont, a telecom multimillionaire who made a Senate bid in 2006, as saying:
"It really is a financial tsunami, and it could go either way. It took Japan 20 years to recover from their buying binge. How long does it take us to work through excessive leverage? That could take years not months. This is our Katrina."
Pickfair , the famed Hollywood mansion named as an amalgamation of the names of its original residents, silent film actors Douglas Fairbanks and Mary Pickford, is for sale in Los Angeles for a cool $60 million. Here are some pics:
Planet Money pal Rob Paterson writes that it's time to get out of the market and stay out of it. Paterson, a former money manager, writes that we can't track the risk of investing anymore -- not with money going into rigs like "credit default swaps" and big players like Lehman Brothers driving right off the map.
Paterson offers advice worthy of Polonius in Hamlet. He says it's time to invest in learning to fix your car yourself and in growing your own food. Just this minute, I'm finding his alt.approach a tonic.
Never mind former Sen. Phil Gramm's "mental recession." Rapper Young Jeezy is titling his next album Recession -- and he does mean the economic variety. He got out in the streets for this one, posting a YouTube report looking at families on the lower rungs (warning: plenty of profanity).
Economists continue to debate whether the U.S. is a recession, but Young Jeezy says he has never seen the economy this bad. In an interview with XXL, Jeezy acknowledges his own change of heart about the financial scene. "When money was plentiful, I was the first one who told you to stack it. Live your life with it," he says. "Now that money slowed up, I'ma be the one telling you to save it like they ain't gon' make it no more."
