- by New Deal democratMedian wage growth:
This is the increase that 50% of workers are getting more than, and 50% are getting less than, on a year-over-year basis. It has been running at under 2% at all times since the financial collapse of 2008.
So, even if inflation runs at the very modest rate of only 2% (and for most of the time since the bottom of the recession in 2009, it has been higher than that), more than half of all workers fail to keep up.
You simply cannot have a durable economic expansion where most workers are consistently falling behind.
There are a few other graphs that give me hope, but only on a temporary basis.
Mortgage refinancing:
Lower mortgage rates in the last several years has enabled a huge number of consumers to refinance. Therefore...
Household debt ratios:
the average household has a lower carrying cost of debt, compared with their income, than at any point in the last 30 years [note that this series ends in December 2011, and won't be updated again until June sometime].
In the past 30 years,as shown in this graph of mortgage rates, which highlights those periods where interest rates are higher than they were 3 years prior in red, once households have been able to refinance, it took at least 3 years without new lows being established, before the economy fell back into recession.
We just set new lows.
It's difficult to imagine any further round of refinancing once this one is done. Can rates really go much lower?
If median wage growth doesn't improve soon, there will be no escaping another recession once the effect of refinancing has run its course, and in the meantime, it's hard to imagine broad-based economic growth.
This time around, we managed to escape without actual wage deflation (although laid off workers may not have been able to find work at the same salary they were making previously). I doubt we will be so lucky a second time, and we may not have even regenerated all the jobs lost in the last recession before the next one hits. I doubt that happens this quarter, or this year, but the more time goes on, the bigger the risk becomes.
13 comments:
Permanently high DISemployment is a policy goal fully shared by both legacy parties and achieved by Obama.
Nobody particularly wants high unemployment (synonym for disemployment, and actually a word everyone uses), why would that politically advantageous. An angry population doesn't generally favor those in power.
So instead of spreading meaningless slogans maybe you should learn something from this blog on economics and save that political nonsense for some other location.
"the average household has a lower carrying cost of debt, compared with their income, than at any point in the last 30 years [note that this series ends in December 2011, and won't be updated again until June sometime]."
The may have lower payments, but have huge debt. Households do note their total nominal debt.
"If median wage growth doesn't improve soon, there will be no escaping another recession once the effect of refinancing has run its course, and in the meantime, it's hard to imagine broad-based economic growth."
Not necessarily. There have been many years over the last 50 where real wages have gone down and the economy has grown. This can happen with a decline in the savings rate and increased borrowing. You've already noted on your site that real estate loans have been going up year over year. So you get student loans, auto loans, and then even credit card debt going up, then you can string the recovery out another few years, if all else is equal (and that's a big if, as we all know).
Wish we could accelerate the process, so that the next recession comes before the election. Better to suffer pain in the short term than the consequences of a second disastrous Obama term. Imagine the negative impact on the economy if Obamacare goes into full effect and his socialism 2.0 is implemented.
Anon at 7:49: I actually agree with your second point, precisely because consumers haven't exhausted their personal savings yet, and there is no end in sight now for refinancing debt at lower interest rates.
Since I think we can agree that there will be no home equity withdrawal mania for a long, long time, IF real wages don't improve before those two lifelines are exhausted, we have a major problem.
As I have said over and over again, housing data and wage data need to be analyzed in light of each other in order to comprehend the housing situation. Housing is healthy when the local median wage can afford a local median turn-key house.
"Entry-level" houses in my town are asking $800,000 while local median wages are comparable to national figures. In other words, houses are 16 times wages. Yet this past weekend, one real estate published a center spread analysis arguing that our local real estate market was "recovering" and that the local condo market was "hot." There is something seriously wrong when sick is called healthy.
Mortgage rates could always go to zero, courtesy of the Federal Reserve, and F/F.
Lots of people are living rent free as they have stopped paying, but the banks have not foreclosed. This has already gone on for far longer than I ever thought it could.
Federal Deficits drive Corporate Profits. Unless current law is changed, the USA faces a massive "Fiscal Cliff" next year, forcing taxes way up and spending down. We could easily see a huge nasty surprise in 2013.
We've got to start saving again. Flooding the market with cheap money and artificially holding interest rates too low has been a disaster. Without a healthy savings rate, we cannot have healthy banks. Without higher interest rates, we cannot offer just rewards to people who do save. The system is broken and it was government that did it.
Sorry but I don't get the Obama comments. The Repubs have done nothing but block everything he's tried and OFFERRED nothing in return. Huge ideology differences are driving this country to the brink.
Real median wages for male workers have been essentially flat since 1973. The reasons real median household income increased until about 2000 were: 1. more women working; and 2. reduction in discrimination against women, both of which have essentially played out. An increase in real wages is not a necessary element for economic growth.
Unknown at 8:55 -
We're in violent agreement. Your comment is really in support of my point.
Since 1980 most households have employed a variety of "work-arounds" for stagnant wages. Women entered the workforce, debt was added, debt was refinanced at lower and lower rates. When all of those failed for any period of time, we got recessions.
With the exception of this round of refinancing, none of those workarounds look possible. If you don't get real wage increases, and the workarounds have run their course, then what?
after gone through this graph i also scaring graphs
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