Last week brought numerous reports on how the US economy is faring, with a general flavor of optimism is most of the reporting. Here are some of the key points, of all which are grounded in the data:
–home prices/sales/starts, the stock market, consumer confidence are all trending up, supporting the recovery;
–GDP and jobs are not breaking records, but they’re solidly positive;
–the sequester isn’t hurting growth as much as some folks thought it would.
Though I’d be cautious on that last point—the fiscal drag is backloaded and some of this stuff, like kids losing Head Start slots, doesn’t show up in this quarter’s GDP—the macro-economy has been consistently expanding since the second half of 2009, “corrections” to once over-leveraged household and business balance sheets are largely completed, and the ever-essential housing market is reliably crawling off the mat.
But these kinds of stats are all a bit removed from what matters most to middle-income working families—what’s happening with those trends?
They’re a lot less favorable. The figure below shows four measures, all adjusted for inflation: the S&P stock market index, GDP growth, the earnings of middle-wage workers, and median household income. In each case, I’ve plotted the growth over the expansion that began in June 2009 through the most recent month of data availability, April 2013 (for GDP, it’s 2009q2-2013q1).
Now, I’m always careful to point out that stock market gains don’t just benefit the wealthy. There are pension funds and 401(k) accounts in that mix as well. But as shown here, the bulk of the market’s gains accrue to the rich: the top 1% holds over a third of equity market wealth, the top 10% holds about 80%; the bottom half holds well under 10%.
Also, those unsettlingly small bars on the graph that represent the wage and income trends of middle-income folks leave out any wealth effect from rising home values—the fact that when your house appreciates in value, you’re wealthier and research shows that tends to boost your spending by something like four cents on the dollar.
But those details are sideshows to the fact that trends in real paychecks and household incomes reveal a quite different story than all the good vibes from home starts, market indexes, GDP, and so on. Sure, there’s a lag between macro and micro, and if the recovery accelerates, unemployment should come down more quickly and the tighter labor market will enforce a more equitable distribution of growth. But that’s not in the near-term cards, and those who want to understand how people are doing in the current economy must take account of all three of those bars in the figure, not just the first one.
Sources: S&P, Standard and Poor’s; GDP, BEA (2009q2-2013q1); Weekly earnings are for blue collar workers in manufacturing and non-managers in services, from BLS; Median household income is from Sentier Research, Figure 1.