Wednesday, February 23, 2011

State of the Union

US Median Income
 According to the US Census Bureau the median income for 2009 was $49,777. This is the lowest since 1997 when the median income was $49,497, using inflation adjusted dollars.  The average per capita income, (Per capita income is the mean income computed for every man, woman, and child in a particular group. It is derived by dividing the total income of a particular group by the total population in that group excluding patients or inmates in institutional quarters) was $26,530 in 2009. The report also shows a drop of 4.57% in household income between 2007 and 2009. Most of that change came in the 2007 – 208 years with a 3.57% change or $1,860. According the data, the income was $52,163 in 2007 and $49,777 in 2009, a loss of $2,386 or about $198 each month.  

Chart 1 below shows the change in median household income since 2000. This indicates a $2,723 loss in income or 5.19%.

(Click on image to see full siize)

This decline or recession has yet to end as stated in the Census Bureau report. During the 1980 – 1982 recession there was a 6% loss and in the early 70’s recessionary period a 5.7% decline.
Conversely in the 1990’s the trend was just the opposite. Between 1990 and 1999 income rose from $47,818 to $52,587, an increase of $3,477 or approximately 7%, as shown in Chart 2 below.
(Click on image to see full siize)

In the 1980 – 1989 timeline income increase by $4,404 or 10%, again using 2009 dollars. As the graphs show there have been increases and decreases in the household income within each decade.  Chart 3 illustrates the trend between the years of 1975 and 2009.
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This illustrates the increase has not been a straight line since 1975, rather a series of ups and downs within the time period. This is also to illustrate that the preceding decades listed here have started with a slight drop and then a noticeable rise. Also this is to show I am not just picking a small timeline for this report.
The current recession has seen a loss of employment by 4.5% in the first 35 months following the beginning stated as December 2007, according to the Bureau of Labor Statistics. Compare this to the prior recessions of the 1970’s, 19780’s and 1990’s, all of which had shown improvements in job loss by this time.
The BLS also reports that the number of persons jobless for a year or more rose from 645,000 in the second quarter of 2007 to 4.5 million in the second quarter of 2010. The group’s share of total unemployment jumped from 9.5 %to a record high of 30.9%. Some researchers have attributed this increase in long term unemployment to firms preferring to hire those who have been unemployed for shorter amounts of time. Others say that lower turnover rates have closed the openings for these individuals. Still some of the researchers state that increased unemployment insurance benefits has contributed to the increase in unemployment duration, although some researchers have argued that the extension of unemployment benefits has had a limited impact on unemployment duration in the recent recession. Joblessness for a year or longer has increased regardless of educational level.
The number of people unemployed for 6 months or less made up 82.8% of those receiving unemployment in 2007 and now only account for 54.2%. Those without work for 6 months to 1 year make up the remaining 14.8% in 2010 while they were only 7.7% in 2007.
Long term unemployment will cause per capita and household income levels to drop. As those numbers of unemployed are spending longer durations without employment and overall unemployment risies, the income will obviously be adversely affected.
The BLS U-6 numbers, total unemployed, plus all marginally attached workers plus total employed part time for economic reasons, as a percent of all civilian labor force plus all marginally attached workers, show the rate at 16.7% at the end of 2011. Using these numbers, the U-6 unemployment rate in December 2001 was 9.6%. that is a 74% increase over that past 9 years.
The BLS inflation calculator shows that $1000.00 in 2000 has the same purchasing power as $1278.88 in 2010. That is an increase of 28% due to inflation, or a loss of 28% in buying power. Remember from earlier there was a loss of 5.19% in household income during this same time period.  Taking the annual rates of around 2.4% over a 10 year period it is easy to see the cumulative effects of this seemingly low rate.
National gasoline prices have increased, as we all know. Given that almost everything we purchase has been delivered using a vehicle that is powered by gasoline, this will also affect overall prices. Energy Information Administration shows that a gallon cost $2.627 in the week of January 04 2010 and is, as of February 21 2011, $3.141 per gallon. That is an increase of $.514, or 20%.
The January all wheat price, at $7.40 per bushel, is up 95 cents from December and $2.50 above January 2010. The corn price, at $5.37 per bushel, is up 55 cents from last month and $1.71 above January 2010. The January cotton price, at 82.9 cents per pound, is up 2.0 cents from the previous month and 22.1 cents above last January. Compared with a year ago, prices are higher for cattle, hogs, calves, turkeys, and milk.

Putting it All Together
When you look at the increase of unemployment, loss of income and increase in real cost of living a bleak picture is coming into view. When you couple this with the ever growing national debt and consumer debt which reached $2.41 trillion in 2010, we have a lot of work to do to get this country back on track. A good note is that the consumer debt has dropped 6% since 2008. Granted, foreclosures, bankruptcies and charge off’s could have a role in this as the chart below shows bankruptcy filings increased during that same period. Another reason may well lie in the fact of increased unemployment and decreased income. Mix inflation with anxieties that accompany all of this happening at once and we are likely to use our credit cards less and, whenever possible pay them off.
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More than 50 million Americans are on Medicaid, a survey of state data by USA TODAY shows. That's up at least 17% since the recession began in December 2007. More than 40 million people get food stamps, an increase of nearly 50% during the economic downturn, according to government data through May 2010. There were also more than 4.4 million people are on welfare, an 18% increase during the recession.
Regardless of the name you give it- recession or depression, we are in a bit of trouble.  As previously sited there are many things in Washington causing job losses and stifling growth.  Congressman John J Duncan Jr. said “In 2005, a study by the Small Business Administration found that businesses spent approximately $1.1 trillion to comply with Federal Rules. Confirming that, another study in 2009 by the Competitive Enterprise Institute said Federal regulatory compliance had reached $1.2 trillion for businesses.”

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