1/8/19: Wages vs GDP growth: when economic growth stops benefiting workers

I have posted earlier some data on the gap between real GDP and real disposable income per capita in the U.S. (see here: https://trueeconomics.blogspot.com/2019/08/1819-debasement-of-real-disposable.html) that evidences the longer-term nature of the ongoing debasement of real incomes in the repeated cycles of financialisation of the U.S. economy. Here is another view of the same subject matter:

Per chart above, consistent with my arguments in the case of disposable income, U.S. labor incomes have been sustaining ongoing deterioration relative to overall economic growth since at least the 1970s. In fact, the current expansionary cycle (yellow line) shows relatively benign speed of deterioration in real wages or labor income share of total real GDP, although the length of the cycle means that the total end-of-recession-to-present decline of ca 54 percent is deeper than that in the expansion of the 2000s (decline of 50 percent).

A different view of the same data is presented below, plotting historical gap between wages and GDP over longer horizon and showing expansion-periods' averages, contrasted against Trump Administration tenure average:

Once again, all evidence points to the decreasing, not increasing rate of wages fall relative to GDP over the years.

Of course, the effects are cumulative, which means that our perceptions of labor share collapse and the amplifying pressure on labor income earners in the economy is warranted.

1/8/19: Debasement of Real Disposable Income share of GDP: Historical Trends

I have been crunching some data recently on the historical gap between real GDP growth and wages/income of households. Some of this work will be forthcoming in an article due later this month, so keep an eye out for it. Some of it is post-dating the article submission. Here is an example of the latter. The following chart plots index of real GDP from 1Q 1959 through 1Q 2019 against the index of real disposable income per capita. Both indices are set at 100 at 1959 average.

There are 5 distinct periods over which growth in real GDP moved further and further away from growth in real disposable income. All are associated with monetary accommodation periods post-recessions, and all are associated with increasing post-recession financialization of the U.S. economy and financial or real estate asset booms.

Interestingly, the current rate of acceleration in the gap between economic growth and disposable income growth is... underwhelming. It pales in comparison to what was witnessed in the 1980s, 1990s and 2000s. To see this, consider the chart showing this gap by itself:

Despite our commonly-expressed public, media and analysts' perceptions of the declining share of economic growth going to disposable personal incomes being a new (current) phenomena, the reality of historical data paints a different picture. Most of declines in the share of economic activity accruing to wages, bonuses and investment and retirement incomes have taken place in previous decades, with the ratio of real GDP to real disposable income being relatively stable from the start of 2013 on. Prior to that rate of the decline in the relative share of disposable income has been less sharp from 1999 through 2012, when compared against all other decades.

The debasement of real incomes has been a steady and historical continuous process over the last 60 years.

3/7/19: Record Recovery: Duration and Perceptions

While last month the ongoing 'recovery' has clocked the longest duration of all recoveries in the U.S. history (see chart 1 below), there is a continued and sustained perception of this recovery as being somehow weak.

And, in fairness, based on real GDP growth during the modern business cycles (next chart), current expansion is hardly impressive:

However, public perceptions should really be more closely following personal disposal income dynamics than the aggregate economic output growth. So here is a chart plotting evolution of the real disposable income per capita through business cycles:

By disposable income metrics, here is what matters:

1. The Great Recession was horrific in terms of duration and depth of declines in personal disposable income.
2. The recovery has been extremely volatile over the first 7 years.
3. It took 22 quarters for personal disposable income to recover to the levels seen in the third quarter of the recovery.

So what matters to the public perception of the recovery in the current cycle is the long-lasting memory of the collapse, laced with the negative perceptions lingering from the early years of the recovery.

To confirm this, look at the average rate of recovery in the real disposable income per quarter of the recovery cycle. The next two charts plot this metric, relative to the (a) full business cycle - from the start of the recession to the end of the recovery (next chart) and (b) recovery cycle alone - from the trough of the recession to the end of the recovery (second chart below):

So looking at the trough-to-peak part of the cycle (the expansion part of the cycle) alone implies we are experiencing the best recovery on modern record. But looking at the start-of-recession-to-end-of-recovery cycle, the current recovery period has been less than spectacular, ranking fourth in strength overall.

Which is, of course, to say that our negative perceptions of the recovery are anchored to our experience of the crisis. We are, after all, behavioral animals, rather than rational agents.

13/2/17: Wages, Income and Consumption: Euro Area's Poor Performance since 2003

Based on data reported at the end of January 2017 by the Eurostat, since 2003, through 3Q 2016, or roughly across the span of 13 years,

• Nominal adjusted gross disposable income per capita has grown by a cumulative 26.37 percent in the Euro Area (EA 19) member states  
• Real adjusted gross disposable income per capita has risen only 5.30 percent
• Real actual final consumption per capita rose just 7.75 percent
• Nominal wages have expanded by 12.4 percent, cumulative.

Compared to pre-Global Financial Crisis peaks (based on the 4 quarters average around the peak) at the end of 3Q 2016:

• Nominal adjusted gross disposable income per capita was 9.7 percent higher
• Real adjusted gross disposable income per capita was only 0.73 percent higher
• Real actual final consumption per capita was up only 1.66 percent
• Nominal wages rose 4.64 percent, or less than half the rate of increase in nominal income.

As chart below shows, in simple terms, the last nine years saw:

1. Basically flat real adjusted gross disposable incomes per capita; and
2. Widening gap between real actual consumption per capita and the real adjusted gross disposable income per capita

Coupled with a simple fact that the EA19 includes countries with consumption and incomes catching up toward the EA12 averages, while gross disposable income does not net out fiscal losses sustained due to post-crisis tax and spending rebalancing across the EA19, the picture is quite dire: there is, effectively, no meaningful growth in incomes in the euro area for some 9-10 years running. Worse, when we adjust for ageing demographics, the marginal increase in the real consumption of the last 9-10 years is also far from being comforting. 

While the Eurostat does not report received real wages dynamics, using income deflator we can estimate changes in the real wages. Chart below shows the results:

In real (inflation-adjusted) terms, take home (received) wages have fallen in the EA19 group of countries in 2003-2016, with 3Q 2016 real wages index reading at around 93.6, down 6.4 percentage points on the end of 2003. A caveat applying to this is that I am using index values to map out nominal-to-real revaluation. Still, minor errors and rounding issues aside, the chart above clearly shows the lack of real wages income uplift in the EA19 since the early 2000s.