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Wednesday, March 14, 2012

Brooding Over Treasury Data

The Treasury receipts surprised me. I don't know quite what to make of them so I am thinking it all over.

I must be wrong about at least one thing, surely. That one thing is construction activity. It's lower than I thought it was. The weather in February was highly favorable, yet we only went +5.5% on DI, versus +7.8% on HI. The difference is that HI is charged on all wages and salaries, so you have the higher income earners showing a big pop.

Currently all three series are comparable-basis YoY. HI are comparable across many years. OAS is up 5.5% (rounded) also, because DI and OAS are charged on the same wage basis.

January and February are complicated. There is wage and self. The self is a larger portion than normal in January, because that's a quarterly payment for most businesses, so it represents the previous three month's earnings, really. In both January and February, the self-employed portions of OAS and DI receipts fell YoY. That could be because business profits are sagging, but is probably mostly due to retirements and shifts from contract work to employment (which shows up very clearly in the Household Survey).

HOWEVER, in February self-employed HI grew by 6% YoY, and in January it was up by slightly more than that. So we have diverging trends among high earners, and probably even shrinking trends among lower earners. (Remember, the higher earners show up in the OASDI portion also.) We do have a definite expansion in jobs in February - the wage portion of DI was up 5.6%, whereas self-employed was down 10%. So a little of that is shift from contract payments to job payments. But that must mean that construction activity is lower than I thought.

Now, in January the wage portion of HI was up 6.9% versus DI's measly 2.8%, which was definitely below CPI, and February's reading is better, thus supporting the very strong reading in the February Household survey of 428 thousand more employed.

Still, these receipts are showing a sharp diversion in trends between REALLY high earners (in February, the excess DI comes from people who have already earned more than $110,000 in 2012) and the lower income earners is worrisome. It's probably mostly due to financial bonuses right now.

Here's the wage basis sequence for the two months for three years Jan, five years Feb. (DOES NOT INCLUDE SELF!)







I included a longer sequence for February. The 2007-2008 sequence shows what happens when you have a top-heavy economy keeling over. Because we still see decent increases in the lower end portion (OASDI) I'm not panicked yet.

Still, here's the problem. For median household earners, real CPI last year averaged from 6-8%. Rents in many areas tended to rise a bit, and if you were paying a mortgage the "homeowner's equivalent rent" thingie doesn't mean much. These households compensated by cutting their spending on services and ramping down their spending on monthly household expenditures (gas, utilities, quality of food, etc).

If we continue through on this path we may not get enough wage increases back in at the lower end to sustain. The establishment survey did start showing cuts in employment on the base level consumer stuff like department stores. So now it's a war down to the line - can we recover enough in real incomes to carry us through the inflation pinch?

This is CPI-W scaled to trough:

See, I'm expecting both mix effects and wage increases to take over some of the lifting (not just additional jobs), and it's going to be difficult. Maybe the weather effect.

An awful lot of people have spent savings and have lost unemployment benefits.

I suspect we are seeing more take-up in jobs due to financial distress:

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