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Friday, January 15, 2010

Still Asleep At The Switch

WhoStruckJohn: Second ditch to the left, and straight on to the congressional midterm elections!

And that about sums up this post, which is dedicated to M_O_M figures.

Before I get into this, I want to point out that I am not disputing BEA figures, but I believe they misrepresent an important point as it relates to the real economy, which is cash flowing into workers' hands and out to businesses.

Let's start with Fausta's blog, which has nothing to do with economics. However, Fausta thinks (probably due to the fact that she grew up in an era in which the libraries still had books), and she was wondering about this NY Times article discussing the CDC's finding that Americans are no longer getting fatter.

Now, one thing you can usually count on when reading an NYT article is that either the facts or the explanation will be completely wrong, and this one is no different. The explanation:
“Until we see rates improving, not just staying the same, we can’t have any confidence that our lifestyle has improved,” said Dr. David Ludwig, director of the Optimal Weight for Life Program at Children’s Hospital Boston.

Dr. Ludwig said the plateau might just suggest that “we’ve reached a biological limit” to how obese people could get. When people eat more, he said, at first they gain weight; then a growing share of the calories go “into maintaining and moving around that excess tissue,” he continued, so that “a population doesn’t keep getting heavier and heavier indefinitely.”

Furthermore, Dr. Ludwig said, “it could be that most of the people who are genetically susceptible, or susceptible for psychological or behavioral reasons, have already become obese.”
We're so fat we can't get any fatter? Srsly, dude? Kthxby.

A look at this graphic tends to suggest that most of the improvement is recent. What you are really seeing here is the result of the inflation of recent years, which has led to a change in food-buying and consumption, mostly among poorer folks. Look at the change in black women in just a few years. This coincides with rapidly rising food prices, not education efforts, and the reason black women are losing the most is that they are trying to feed their kids.

In fact, it has a lot to do with this graph that I posted last year:

The CDC is going to be all excited about the next few years of obesity data. The population is growing; food shipments are dropping; ergo, thinner 'Mercans.

It's a little-discussed fact, but true obesity (not the BMI calculation, which is highly flawed) in the US is concentrated in lower-income Americans and certain ethnic groups. Well, many of them went on short commons about mid 2005, as this graph showing the Food At Home index suggests (in combination with energy increases, which reduced the budget available for food):

And the number on short commons kept growing through 2009. One of the few things this administration has done very well at is food stamp allotments. The above trend is also related to the drop in bottled beverage sales, which is also related to food costs and lower incomes. It would be nice if our government could climb down from the Breatharian heights of academia and get connected to the reality of an increasing number of working and middle-class American families.

This is one reason the various health reform bills have my eyebrows raised so far - the net effect over the first few years is to cut benefits and raise costs on most of these people; I do not think they can afford it. In 2006 and 2006 I already knew of a number of white families with children and two working parents in which the parents were skipping meals at the end of the pay periods to feed their children. They also can't afford to pay more for energy, which is why sales of propane are way up (and stocks are way down), and consumption of heating oil is highly restrained, no matter what the weather may be.

And how is this playing out on the ground? Well, I have discussed before that I have my own sets of inflation and income indicators, and the reason they are so different is that they concentrate on cash flow. Often the official figures include other imputed and non-paid amounts. It's fine if your company is paying more for medical insurance, but it doesn't put money in the wage-earners' pockets, does it? And it is possible to argue endlessly about various aspects of the calculation (such as the OER estimate). For that matter, BEA argues endlessly with itself over its attempt to measure inflation. They are not attempting to distort anything, but to show a true picture of a very complex situation. But still....

On a cash basis, Treasury reported wages (as calculated from the Medicare tax receipts) have slowed their YoY fall consistently this year. From October through December, the YoY drop was -3.3%, -3.2%, -3.1%. Of course the YoY comparison period is getting easier, which is one factor.

According to BEA:
Real average hourly earnings fell 1.3 percent, seasonally adjusted, from December 2008 to December 2009. A 0.3 percent decline in average weekly hours combined with the decrease in real average hourly earnings resulted in a 1.6 percent decrease in real average weekly earnings during this period.
But I show that total wages dropped by about twice that, before adjusting for inflation. One difference is that Medicare tax isn't paid on a lot of benefits. Nonetheless, my -3,1% for YoY December is before inflation. BEA has YoY inflation for all items at 2.7%. I feel safe in saying that it is not less (it is far more for families on moderate to low incomes in most areas), which means that real cash wages declined more than 5% over the year. Per capita, of course, they declined more. In fact you can literally see this by running your eyes over that BEA table, and noting that the more basic the expenditure category is, the higher the inflation rate EXCEPT for food at home, which shows a net decline - because a lot of people have had to cut back on eating. Another way to see this is to follow the price of eggs, which are fall-back for animal protein. And eggs have sustained their margin over this period.

If it were not for the early retirements and extended unemployment benefits, not to mention expanded food stamps and so forth, the US population would be in a heck of a fix. And creditors are in a heck of a fix.

Since consumers only pay debt out of cash income, or a relative gain in cash income from offsets in benefits such as WIC and food stamps, the outlook for marginal credit is getting consistently worse.

Industrial production seems to suggest that the manufacturing surge for consumer items and businesses is falling off. Take a look at the fourth quarter vs the third quarter growth rates for business equipment and consumer final goods.

From here on out, the natural growth rate in the economy is going to be much more related to movements in incomes than the end of the cliff-dive. When I saw industrial production this morning and looked at John's comment, I burst out laughing. Because if utilities had not risen so much, the headline increase of 0.6% would have been pretty paltry in December. The US economy is struggling weakly for the shore, but it cannot survive any further drags at all. It is possible that energy prices above $70 alone might push us into the next dips. Ladling any more on top of this is going to kill it slowly. There isn't the spare cash out there.

Forget housing. There is really very little demand for it. Cars are wearing out, which helps car sales. But most people just aren't earning enough to buy a new car and a house plus pay necessities. CA still has life left, because its homeownership rate was so low. But in many areas, property taxes alone are going to mandate a slow decline in home prices over the next decade.

All the unemployed should be weighed when they apply for food stamps. Obese individuals can live for quite a while on their excess fat and don't require a full ration of stamps. We need to mandate healthly eating habits so the poor can help pay for Obamacare.
Cars are wearing out, which helps car sales.

I've been restoring my 15-year-old SUV. It makes sense for me--the drivetrain is younger than the vehicle (thanks to a good warranty), and gets better mileage than a new replacement would thanks to emissions requirements. It just needs a little sprucing up. The fix-it-shops I've been talking to are all talking about how good business has been.

I'll bet I'm not the only one fixing up an old vehicle, rather than buy new.
Neil - definitely not, and since the Cash for Clunkers program jacked up used car prices, more and more people may be taking that option.
I'd almost managed to forget about CforC. I went to a junkyard to get some parts for my SUV, and there were a couple of beautiful late-model versions of my same vehicle there, in perfect condition. They obviously had another couple 100K miles left in them. I asked what the *bleep* those trucks were there for, and offered to swap him straight-up for mine. The manager just shrugged and said "Cash for Clunkers". He looked pretty sad over it, too.
Been putting off a new car for 2 years so far myself; will probably put it off for another 3 or so too.

What we don't make, government and creditors can't take. It's just that simple.
Me too - I was thinking about buying last year, but considering the medical bills, I will keep my car running as long as possible.
Interesting & depressing.

What is the "food at home" index trying to measure?
David - food at home is food bought in groceries and so forth and prepared and eaten outside a commercial establishment such as a diner, restaurant or bar.

Within the food at home data there are interesting patterns showing that Americans must, on the whole, be switching food choices down the ladder. For example, pasta prices have remained high.
M_O_M, I was wondering if the eat-at-home numbers are showing actual inflation? A few years ago, we shifted our diet towards what I call "poor-folks food", which is the less-desireable cuts of meat (which often require long cooking times to be palatable) and more basic produce and dairy items. We've learned cooking methods so that we've given up nothing on flavor and nutrition, mind you--quite the opposite.

But I've noticed that our grocery bill has not increased much, if at all--prices on our basics seem to have kept stable. It's the occasional gourmet or pre-prepared item that has gone up.
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