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Monday, March 28, 2011

What About The US Economy

BEA's personal income report was released this morning.

In February and in "real" terms (2005 chained dollars) Disposable Personal Income fell marginally (-0.1) whereas Personal Consumption Expenditures rose 0.3.

There's a lot of detail behind these figures. In January real DPI rose 0.5. But that was substantially based on the 2% reduction in SS taxes. BEA has tried to back this factor out and finds that nominal income excluding the changes would have risen a little bit more in February than in January. That's good.

Another way to backcheck this:
Employer contributions for government social insurance increased $1.0 billion in February, compared with an increase of $8.9 billion in January. The January change reflected an increase in the tax rates paid by employers to state unemployment insurance funds, which had boosted January contributions by $7.5 billion.
So the January increase without the tax change was 1.4 billion and the February increase was 1.0 billion.

Nonetheless, higher costs of living are now cutting into real incomes. I think this will have a slow effect this year, but I wonder what the heck happens next year when the 2% cut expires? Nominal month over month DPI for January increased 0.8, and it has to have something to do with consumer spending. BEA pegs the change at 105.4 billion, which pleases me because it is about what I had calculated.

In February, non-durable purchases increased 0.4 whereas durable purchases increased 1.4%, the vast majority in motor vehicles. Cars are carrying this economy.

The back story here is that the big tax changes (expiration of MWP, 2% SS tax cut for individuals, increase in unemployment insurance contribution rates for employers) work very differently for those at different income levels. Individuals earning around 20K annually won't have seen much of a change. Individuals earning considerably less got a tax increase compared to 2010. Individuals who earn considerably more are getting a nice tax decrease and corresponding increase in their paychecks, compared to 2010.

When you add the inflation into the mix, things are going to get tight here for lower income households. Those households tend to spend more of their income on unavoidables like food and fuel. Usually May marks the beginning of the best period of the year for households on tighter budgets. Winter heating is over and summer cooling has not yet begun. Gas prices might be high enough to nullify that.

From checking what's happening in the grocery stores, I have decided that I may have been too optimistic about the timing. I would think a slight downturn would begin at the end of this year, but it will probably pick up speed when taxes are increased in 2012. Or maybe we won't increase them. It will be an election year. Admittedly that would just drive another nail in the coffin of our federal budget problems, but when did politicians ever let that type of thing concern them?

The unfortunate fact is that PCE does not bear evenly on households at different income levels, so you can greatly expand the range of possible real income rates for households of different compositions.



Comments:
This recession or depression, coupled with the decline
in the dollar, is slowly but surely wiping out the middle class and grinding down the poor. Tax policies need to be changed now. Eliminate the payroll tax and replace it with a tariff on imported manufactured goods.
Oh wait, that would favor labor over capital, never mind.
Sporkfed
 
This recession or depression, coupled with the decline
in the dollar, is slowly but surely wiping out the middle class and grinding down the poor. Tax policies need to be changed now. Eliminate the payroll tax and replace it with a tariff on imported manufactured goods.
Oh wait, that would favor labor over capital, never mind.
Sporkfed
 
I feel so lucky. I talked to my boss about telecommuting. I suggested that this was a way to compete as a small business. It's the equivalent of a raise that doesn't cost anything to company. And there's no reason not to allow telecommmuting these days.
 
Did he agree? When you last reported, he was thinking it over.

Telecommuting works for many jobs but doesn't for far more. I think it is a good deal.
 
Spork - "grinding down the poor" is a good way to put it.
 
I'm doing a two month trial. My immediate boss used to make this same commute,so he's sympathetic. The owner of the company likes my work. We just lost a good guy a few weeks back so we're short staffed. My timing was right and I couched the request in the benefits to the company. I did my first week and there were a few hitches but not too bad.

One of the things I can do now, is a split shift. I can give them five hours in the morning, when call volume is heavy and take a three hour break, coming back to finish the day with my regular shift. I do two days a week on my regular shift, so I don't have to drive three days. I've mentioned it to a couple of customers and they've been sympathetic.

I do my work on the phone, so I'm fine as long as they can route calls to me. Our tools are available online and I can do a remote desktop for the few things that I need to be logged into the network to do. I have more energy and I get more done at home. I work in a back bedroom, so I don't have any distractions. (I've had a cat or two insist on coming in, but they've gone to sleep and left me alone.)

I wasn't sure how it would go, but I really do like this. I'm doing my best to make it permanent and see if I can't help them expand it out to a few other folks.
 
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