US: Desperately seeking income

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By Leith van Onselen

Westpac Institutional Bank yesterday released a sobering note (below) on the ongoing income squeeze taking place in the US.

In spite of the current cyclical economic recovery, the recent fall in the US unemployment rate has been driven almost entirely by lower labour force participation (see next chart).

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In fact, the overall number of jobs is still 2.5 million below its peak, the employment-to-population ratio has also barely moved off its lows, and aggregate hours worked is yet to recover lost ground (see next chart).

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To make matters worse, real average hourly wages are still 0.5% lower than their June 2009 level, with real weekly wages (inflation-adjusted take-home pay) having grown by only 1.3% over the past four years (see next chart).

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And while households have benefited from lower interest rates, this boost to discretionary incomes has been offset by rising health care and gasoline costs, meaning that real discretionary incomes have not grown since 2006 (see next chart).

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This all leaves Westpac to conclude:

It is little wonder then that consumption growth has failed to accelerate in a significant and sustainable fashion. Not only do households continue to be weighed down by large historic debt burdens, they are having their purchasing power eaten away by price rises for life’s ssentials.

It is all well and good for asset price gains to bolster confidence, but real improvements in spending power are necessary to see broad-based, persistent spending growth. This is not the case at the current juncture; and, in the absence of a positive exogenous shock, seems unlikely for
the foreseeable future.

Full report below.

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US – Desperately Seeking Income (Westpac 26 June 2013)


  1. GunnamattaMEMBER

    Geez that is a seriously gloomy read, when you consider that that falling UE rate is the basis for most of what optimism is actually out there.

    So the real Macro scorecard at the moment is

    US – treading water but not doing much else
    China – slowing markedly, and flirting with financial system aneurysms (admittedly for good reasons)
    Japan – strapped to the top of the rocket with the engines on
    EU – floating face down in the pool with hands tied behind its back

  2. From what I have seen in recent trips around Texas and Md/Va I’d say it s definitely the start of a boom, but its a post GFC boom.

    The uncertainty of the GFC lives on in the minds of both businessmen and consumers. This means that demand is no where near as robust and wide spread as pre GFC, however where clear value and real product/service differentiation exist there is definitely demand. From what I’ve seen demand is extremely strong at the luxury end of the market but its the middle of the market that lacks pricing power. I believe they call this the Walmart syndrome, people who pre GFC would not have been caught dead in a Walmart store have gotten use to shopping there and are now reluctant to spend twice as much for the same type of product. It takes real differentiation to re-attract and retain these customers, that seems to be the crossroads that we are at.

    Personally I see the sporadic employment problems as an extension of the demand problem because businesses are very reluctant to add full time employees without solid demand (naturally they employ part-timers if they possibly can because its cheaper).

    IMHO Demand in the middle of the market will return solidly IF US manufactures and retailers simply focus on achieving real differentiated products, of course that’s always easier said then done.

    One final point: Several middle of the market retailers that I spoke with blamed the shift to on-line buying for their demise. It seems that everything from whole-house ducted AC systems and even full kitchen remodels can be purchased on-line. This is adversely affecting the geographic monopoly pricing power that local outfits previously enjoyed / leveraged.

  3. It s probably a problem we are going to face as well on day, this low participation, so many good job/manufacturing ect.. have been sent offshore by greed, pure greed.Even when the conditions are supposed to improve, these jobs are now gone for good and are not replaced, workers do not even look for them, the (manufacturing/blue collar) infrastructure is probably not there anymore.Only low paid jobs/ basic survival ones are plentiful at less than $10ph/not benefits.

  4. All this yet all western governments are persisting with the Negative RAT interest rate, expand the FIRE economy to parasitise the real economy policies.

    • Yep. But when the banks own the politicians and the public haven’t noticed yet how do you stop them?

  5. reusachtigeMEMBER

    It’s interesting to see that private debt gets mentioned more and more nowadays considering that it is officially reagrded as irrelevant in neo-classical economics.

  6. I am inclined to accept Krugman’s thesis that a lot of the problem is the large swag of profits going to monopolist/quasi monopolist rentiers, without the need for them to invest.

    Compounding the problem is the offshoring of manufacturing jobs to China.