The 'Economic' State Of The Union
Submitted by Lance Roberts of STA Wealth Management,
Tomorrow the President of the United States is set to deliver his annual "State Of The Union" address. This past week, I discussed the upcoming speech with Dave Boyer at the Washington Times who hit on some of the key issues that will be addressed:
"Mr. Obama’s nationally televised speech to a joint session of Congress will strike themes intended to fire up Democratic voters for the midterm elections, including proposals for a nearly 40 percent hike in the federal minimum wage and an extension of long-term unemployment benefits.
Aides say Mr. Obama also will remind lawmakers that he intends to issue more executive orders in this 'year of action' after criticizing the 2013 Congress as one of the most unproductive in history. He is expected to announce executive actions on job training and retirement security.
Mr. Obama also will renew the call for comprehensive immigration reform, one of the few legislative issues on which there still appears to be room for compromise between the president and House Republicans.
But the president is expected to focus on economic 'fairness' issues, such as the minimum wage, as part of his push to reverse increasing income disparity in America, which he calls 'the defining issue of our time.'"
While these particular issues are very politically and emotionally charged on both sides of the aisle; I think it is more useful to review "State Of The Union" from a data standpoint rather than a philosophical one. The real question that needs to answered, in my opinion is quite simple: "Are we better off today than we were when the current Administration took control?"
I leave you with the following series of charts to answer that question for yourself.
Since 2009, Government debt has surged by over $6 Trillion while real economic growth has only risen by $1.2 Trillion. However, even this number is inaccurate as the current government debt levels are actually higher than stated as the Treasury has been resorting to "extraordinary measures" to "pay bills" as Congress debates over increases in the current statutory debt limits.
While the current Bureau of Labor Statistics employment reports currently shows the unemployment rate at 6.7%, that number is obfuscated by the 92.8 million workers that are currently not counted as part of the labor force. As I have discussed previously, when it comes to economic strength it is full-time labor that leads to household formation and higher consumption. The chart below shows the amount of full-time labor as a ratio of the working age population.
The annual rate of change in personal incomes has been on a decline since the turn of the century. This is a function of both the structural shift in employment (higher productivity = less employment and lower wage growth) and the drive to increase corporate profitability in the midst of weaker consumption.
The chart below shows the disparity betwen corporate profits and employment and wages. Full a more complete discussion on this issue read "Corporate Profits & Income Equality."
The issue of declining incomes and rising "income inequality" is really best shown by the level of social benefits as a percentage of disposable incomes today. Today, roughly 1-in-3 households receive some form of government assistance.
When it comes to the economy, it is home ownership that is the reflection of economic well-being. Since 2009, the government has poured trillions of taxpayer dollars into the housing market to try and increase activity. The effect of those injections has only managed to return the total housing activity index back to its 2010 peak.
However, as I stated above, it is ultimately household formation that leads to higher levels of consumption and stronger economic growth. The chart below is from the recent missive on the "Real Housing Recovery" which shows that homeownership is currently near its lowest levels since the early 1980's.
Lastly, the chart below is the Economic Output Composite Index. (For a description of the underlying construction of the index click here)
While there have been repeated "pops" in economic activity due to massive ongoing interventions by the Federal Reserve's monetary policies, the "struggle along" economy remains.
Defining The State Of The Union
The President will do his best to put a positive spin on the current economic environment and the success of his policies to date when he gives his speech tomorrow. However, how you define the current environment may have much to do with where you fall in current income distribution. This was a point made by Mr. Boyer:
"In 2012, the richest 10 percent of Americans earned their largest share of income since 1917, said Emmanuel Saez, an economist at the University of California at Berkeley. Meanwhile, Census Bureau statistics showed that real average income among the poorest 20 percent of families continued to fall each year from 2009 to 2011."
As with all things - it is the lens from which you view the world that defines what you see. In the end, it will be whether we choose to "see" the issues that currently weigh on economic prosperity and take action, or continue to look the other way. History is replete with examples of the demise of empires that have done the latter.
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