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Thursday, June 17, 2010

Unemployment Claims And Wages

Today's initial claims were 472,000, although last week's were revised down a bit. The four week moving average is unchanged from last week's originally reported 463,500 (since revised to 464,000). This is a remarkably high initial claims rate, and it will add fuel to the double-dip crowd. Justly. The seasonally adjusted insured employment rate increased to 3.6%.

Only deflating consumer prices (-0.2% for May) is injecting enough into the economy to prevent that double dip, but consumer prices are going to start rising now.

And if wages and salaries don't rise, it's all up.

This is from the Monthly Treasury Statements, which can be found here:
May 2010
HI Tax: 13,641
Self: 268
Total: 13,909

May 2009
HI Tax: 13,946
Self: 278
Total: 14,224 (-2.2%)

May 2008
HI Tax: 14,314
Self: 278
Total: 14,592 (-4.6%)

May 2007
HI Tax: 13,708
Self: 260
Total: 13,968 (-0.04%)

May 2006
HI Tax: 13,010
Self: 241
Total: 13,251 (+5.0%)
You can compare that to the April progression in this post. The one-year YoY drop has declined, but the two-year YoY drop has increased marginally. The one-year comparison keeps getting easier and easier as we get further into the phase of declining incomes. As in April, we have to go back to 2007 to pretty much break even, and we only rack up an increase over 2006. Because I did not include 2006 figures for April, here they are:
April 2006
HI Tax: 13,529
Self: 5,013
Total: 18,542 (+6.0%)
The bad news is that April's 2010/2006 change was a percentage point higher than May's. I think we are about to start seeing a better trend in wages and salaries. So far in June we have continued a YoY rise in WIET receipts.

The implications are pretty profound, because these are nominal, aggregate figures. The population has increased since 2006, and when you account for the increase in the cost of services and items such as property taxes, total real aggregate wages and salaries have dropped since even 2006. Further, the higher-end incomes are the ones that have generally increased (there is no limit on HI tax), so the average wage earner is earning substantially less than four years ago on a real basis.

The fiscal position is not going to improve until we see wages and salaries rising again. One of the major issues are retirement benefits (SS, federal, state and local). As the wave of retirements increases, either salaries have to increase or average levels of taxation have to increase. There's no other way. The end result is going to be that we are going to have to boost taxation on retirement income, because there's no other way to balance the books.

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