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A deeper dive into personal income and outlays for March shows significant signs of consumer stress to maintain standards of living.

Real Income and spending data from the BEA, chart by Mish

This is a follow-up with a couple new charts to my post on Friday, Personal Spending Jumps More than Income in March

Income Minus Spending Chart Notes

Real means after inflation. DPI means disposable Personal Income after taxes.
Only twice in the last 10 months has growth in real income been greater than growth in real spending.

Personal Income Four Ways

Understanding Personal Income

The difference between PI (red) and DPI (blue) is taxes, just over 3 trillion dollars annually.
The difference between DPI (blue) and Real DPI (yellow) is inflation.
The difference between Real DPI (yellow) and Real DPI Minus PCTR (green) is Personal Current Transfer Receipts

PCTR are government benefits that include Medicare, Medicaid, food stamps, Social Security, and disability payments.

Personal Income and Real Hourly Wages

Income data from the BEA, hourly earnings from the BLS, chart by Mish

Percentage Increases in Income and Hourly Earnings

DPI is up 25.2 percent since pre-pandemic
Real DPI is up 6.6 percent since pre-pandemic
Real Average Hourly Earnings are up 0.9 percent since pre-pandemic

Income includes wages and salaries, Social Security and other government benefits, dividends, and interest.

Who’s Doing Well and Who Isn’t?

Those dependent on wages and salaries alone have not fared well since the pandemic. That also includes many on government benefits.

The asset holders (those with interest income, rental income, dividend income etc., are doing much better.

On average, things look at least OK, if not good.

But for millions of people struggling with food and rent on real hourly earnings that have gone nowhere in four years, the economy does not look OK.

Want to Know Where the Economy Is Going? Watch The Top 10%

January 19, 2023

Want to Know Where the Economy Is Going? Watch The Top 10%

Should the wealth effect reverse as assets fall, capital gains evaporate and investment income declines, the top 10% will no longer have the means or appetite to spend so freely.

Soaring wealth-income inequality has all sorts of consequences. As many (including me) have noted, the concentration of wealth and income in the top 0.1% has enabled the few to buy political influence to protect their interests at the expense of the many and the common good.

In other words, extreme wealth-income inequality dismantles democracy. There is no way to sugarcoat this reality.

But the concentration of wealth and income isn’t limited to the top 0.1% or top 1%. The top 5% and top 10% have increased their share of household wealth and income, too, and this has far-reaching consequences for the economy, as the top 10% accounts for the bulk not just of income but of spending.

According to the Federal Reserve, ( Distribution of Household Wealth in the U.S. since 1989), the top 1% owned 22.7% of all household wealth in 1989. Their share increased to 30.6% in 2022. The share of the 9% below the top 1% (90% to 99%) remained virtually unchanged at 37.4%. The top 10% own 68% of all household wealth.

But this doesn’t reflect the real concentration of income-producing assets, i.e. investments. Total household wealth includes the family home, the F-150 truck, the snowmobile, etc. What separates the economic classes isn’t their household possessions, it’s their ownership of assets that generate income and capital gains.

As the chart below shows, the top 10% own the vast majority of business equity, stocks/bonds and income-producing real estate, between 80% and 90% of each category.

This means the tremendous increases in asset valuations of the past two decades have flowed almost exclusively to the top 10%, with the important caveat that the vast majority of the gains in income and wealth have flowed to the top 0.1%, top 1% and top 5%.

…click on the above link to read the rest…

The Importance Of A Resilient Life

September 22, 2019

The Importance Of A Resilient Life

In the end, it will mean all the difference

My business partner Adam and I recently met with a successful business owner whose career began on Wall Street. The kind of guy who should be rooting for the system, because it has treated him well.

Instead, he was quite nervous about the sustainability of the status quo. “Starting in August,” he said, “Maybe it was the Amazon catching fire, maybe it was the negative interest rates – I don’t know for certain what the trigger was – but something has snapped.”

I agree. Because I feel it, too.

As do so many others. And not just those who regularly read PeakProsperity.com. Increasingly, even ‘mainstream’ voices are stating to report a profound sense that something really isn’t right. That — from the economy to geopolitics to the natural world — things are swiftly worsening.

Public perception is beginning to shift from complacency to fear. Countries are fast rejecting globalization in favor of nationalization. The holes in our ecosystem — vanishing birds, insects, amphibians and fish stocks — are becoming frighteningly obvious. The threats to life as we’re accustomed to it are becoming more visible while accelerating in both magnitude and frequency.

I expounded on the danger of this in my recent report It’s the Pace of Change That Kills You. Negative developments can spark their own vicious cycle. The more components of a system that fail, the more at risk the remaining components become.

That report was published just two weeks ago. Since then the world’s largest oil refinery was attacked by hostile forces and knocked out of commission, throwing the future integrity of the global oil market into question. Scientists just announced that North America has lost 29% of its total bird population (a drop of -3 billion) in the past half century.

…click on the above link to read the rest of the article…

Italy Becoming Poor — Becoming Poor in Italy. The Effects of the Twilight of the Age of Oil

April 22, 2019

Italy Becoming Poor — Becoming Poor in Italy. The Effects of the Twilight of the Age of Oil

The living room of the house that my parents built in 1965. An American style suburban home, a true mansion in the hills. I lived there for more than 50 years but now I have to give up: I can’t afford it anymore.

Let me start with a disclaimer: I am not poor. As a middle class, state employee in Italy, I am probably richer than some 90% of the people living on this planet. But wealth and poverty are mainly relative perceptions and the feeling I have is that I am becoming poorer every year, just like the majority of Italians, nowadays.

I know that the various economic indexes say that we are not becoming poorer and that, worldwide, the GDP keeps growing, even in Italy it sort of restarted growing after a period of decline. But something must be wrong with those indexes because we are becoming poorer. It is unmistakable, GDP or not. To explain that, let me tell you the story of the house that my father and my mother built in the 1960s and how I am now forced to leave it because I can’t just afford it anymore.

Back in the 1950s and 1960s, Italy was going through what was called the “Economic Miracle” at the time. After the disaster of the war, the age of cheap oil had created a booming economy everywhere in the world. In Italy, people enjoyed a wealth that never ever had been seen or even imagined before. Private cars, health care for everybody, vacations at the seaside, the real possibility for most Italians to own a house, and more.

…click on the above link to read the rest of the article…

238 academics call on the EU to plan for a post-growth future

January 24, 2019

238 academics call on the EU to plan for a post-growth future

Preface. We know there’s going to be no growth soon due to peak oil and limits to growth, and ought to be planning for it so that the financial system doesn’t “freak out” and crash like Humpty Dumpty, beyond repair. We will eventually be forced to reach a steady state economy, but the landing when civilization snaps from resource shortages could be softened by evolving to a non-growth society, which would also hugely help the environment and reduce biodiversity loss.

September 16, 2018. The EU needs a stability and well-being pact, not more growth. 238 academics call on the European Union and its member states to plan for a post-growth future in which human and ecological wellbeing is prioritised over GDP. The Guardian.

This week, scientists, politicians, and policymakers are gathering in Brussels for a landmark conference. The aim of this event, organised by members of the European parliament from five different political groups, alongside trade unions and NGOs, is to explore possibilities for a “post-growth economy” in Europe.

For the past seven decades, GDP growth has stood as the primary economic objective of European nations. But as our economies have grown, so has our negative impact on the environment. We are now exceeding the safe operating space for humanity on this planet, and there is no sign that economic activity is being decoupled from resource use or pollution at anything like the scale required. Today, solving social problems within European nations does not require more growth. It requires a fairer distribution of the income and wealth that we already have.

Growth is also becoming harder to achieve due to declining productivity gains, market saturation, and ecological degradation.

…click on the above link to read the rest of the article…

Why Everything That Needs to Be Fixed Remains Permanently Broken

December 19, 2018

Why Everything That Needs to Be Fixed Remains Permanently Broken

Just in case you missed what’s going on in France: the status quo in Europe is doomed.

The status quo has a simple fix for every crisis and systemic problem:

1. create currency out of thin air

2. give it to super-wealthy banks, financiers and corporations to boost their wealth and income.

One way these entities increase their wealth and income is to lend this nearly free money to commoners at much higher rates of interest. I borrow from central banks at 1% and lend it to you at 4.5%, 7% or even 19% or more. What’s not to like?

If a bank is insolvent, it can borrow money at 1% from central banks. If Joe Blow is insolvent, the only loan he can get is at 23%, if he can get any credit at all.

3. China has a variant fix for every financial crisis: build tens of millions of empty flats only the wealthy can afford as second or third “investment” flats. If the empty flats start dropping in price, government entities start secretly buying flats to support the market.

4. Empty malls, bridges to nowhere and ghost cities are also a standard-issue fix in China. Built it and they will come, until they don’t. But who cares, the developers and local governments (i.e. corrupt officials) already pocketed the dough.

You see the problem: making rich people richer doesn’t actually fix what’s broken, it only makes the problems worse. So why can’t we fix what’s broken?

It’s a question that deserves an answer, and the answer has six parts:

1. Any meaningful systemic reform threatens an entrenched, self-serving interest/elite which has a tremendous incentive to squash, co-opt or water down any reform that threatens their monopoly, benefits, etc.

…click on the above link to read the rest of the article…

The Primacy Of Income

November 17, 2018

The Primacy Of Income

The Era Of Gains is over

Ever since the central banks became serial bubble blowers twenty years ago, household wealth has mostly been driven by asset price inflation:

But this has been a quixotic pursuit. Created by pulling tomorrow’s prosperity into today, these asset price bubbles are unsustainable, and invariably suffer violent corrections at their end.

So far, the central banks have responded to these corrections by simply doing more of the same, just at greater and greater intensity. To keep the current Everything Bubble going, the world’s central banks have not only had to more than quintuple their collective balance sheets, but have recently had to resort to the extreme (desperate?) measure of injecting the greatest amount of liquidity ever in 2016 and 2017.

History has shown us that the height an asset bubble reaches is proportional to the damage it wreaks when it bursts. Applying this logic, the coming pop of the Everything Bubble will be devastating.

So devastating that analysts like John Hussman forecast a 0% (or worse) total market return over the next twelve years:

Moreover, the primary driver and supporter of asset price appreciation over the past seven years, central bank easing, is now gone. For the first time since the GFC, the collective central bank liquidity injection rate (the solid black line in the below chart) is now net zero.

And plans to tighten much further from here have been clearly committed and communicated to the world:

As a consequence, we fully expect yesterday’s capital gains to become tomorrow’s capital losses. What goes up on thin-air money comes down with its removal.

And while this is going on, interest rates are suddenly exploding higher around the world after spending a decade at all-time historic lows:

…click on the above link to read the rest of the article…

Global Economy On Precipice of Secular Decline…Detailed via Shifting Population, Demographics, Income, and Consumption

August 22, 2018

Global Economy On Precipice of Secular Decline…Detailed via Shifting Population, Demographics, Income, and Consumption

Many look at global population growth as a given to greater consumption…and looking at the chart below of total global population set to hit 7.8 billion by 2020, one might be forgiven for this viewpoint. However, the reality, when one looks into the numbers, is that growth in global consumption has ended, as I recently detailed, Investing for the “Long Run”? You May Want to Consider This. This article explains why this population growth will no longer equate to economic or consumptive growth.

0 to 64 year old Global Population
The 0 to 64 year old global population is about 7 billion persons, as of 2018. The chart below shows the distribution and changing size of that population from 1950 through 2050 by high income (black line…$12,000+ income per capita including the US/Canada, most of Europe, Japan, Aus/NZ, etc.), upper middle (yellow line…$12,000 to $4,000 per capita income including China, Russia, Brazil, Turkey, Mexico, Thailand, Columbia, etc.), lower middle (red line…$4,000 to $1,000 per capita income including India, Indonesia, Pakistan, Bangladesh, Ukraine, Philippines, Egypt, etc.), and low income nations (blue line…less than $1,000 in per capita income including most of sub-Saharan Africa, Afghanistan, Haiti, etc.). The simple takeaway should be that the 0 to 64 year old populations among the high and upper middle income countries have ceased growing and will now be shrinking, indefinitely. All 0-64 year old population growth from now forward will be among the lower middle and low income nations of the world. So what?

Income by Age of Head of Household
Why the focus on 0 to 64 year old populations? Average income and expenditures vary greatly by the age of the head of household.

…click on the above link to read the rest of the article…

What’s Wrong with the Economy: 9 Toxic Dynamics

June 13, 2018

What’s Wrong with the Economy: 9 Toxic Dynamics

These nine dynamics are mutually reinforcing.

Beneath the surface signals of an eternally rising stock market and expanding GDP, we all sense something is deeply, systemically wrong with the U.S. economy. These nine structural dynamics generate secondary dynamics, all of which are toxic to social mobility, sustainable prosperity, accountability and democracy:

1. The financialization of the economy, which transformed services, credit, risk and labor into commodities that could be traded globally. Financialization generates enormously asymmetric returns: those with access to low-cost credit, global markets and expertise in finance collect the lion’s share of gains in income and wealth.

2. The technological transformation of the economy, which has placed a substantial scarcity premium on specific tech/managerial/communication skills and devalued ordinary labor and capital. As a result, the majority of gains in wealth and income flow to those with the scarce skills and forms of capital, leaving little for ordinary labor and capital.

3. The end of cheap fossil fuels. The fracking boom/bubble has obscured the long-term secular trend: the depletion of cheap-to-access and process oil. As many analysts have observed (Nate Hagens, Gail Tverberg, Richard Heinberg, Chris Martenson et al.), the global economy only grows if energy and credit are both cheap.

4. Globalization, which transformed the developing world into the environmental dumping ground of the wealthy nations and enabled the owners of capital to offshore waste and labor.

5. The destructive consequences of “growth at any cost” are piling up. “Growth” is the one constant of all existing political-economic systems, and none of the current Modes of Production (i.e. the structures that organize production, consumption, the economy and society) recognize that “growth” is not sustainable.

The first two dynamics drive three other dynamics that have hollowed out the productive economy:

…click on the above link to read the rest of the article…

The U.S. Economy In Two Words: Asymmetric Gains

June 2, 2018

The U.S. Economy In Two Words: Asymmetric Gains

The Status Quo is in trouble if the bottom 95% wake up to the asymmetric gains that are the only possible output of our hyper-financialized economy.

The core dynamic of the U.S. economy in this era is asymmetric gains: the gains in income, wealth and power are increasingly concentrated in the top slice of the economy and society, while the income, wealth and power of the majority stagnate or decline.

The Status Quo must paper over this widening gulf with threadbare narratives that no longer match reality: for example, we’re an ownership society. We sure are: the vast majority of the nation’s productive assets are owned by the top 5%.

The U.S. economy has changed, but the transformation is largely invisible to the average participant and conventional economist. The previous iteration of the economy expired in the 1970s, an era of stagflation (stagnant growth and rising inflation that eroded the purchasing power of most households), higher energy costs and increasing global competition, an era in which the “external costs” of industrial-scale pollution finally came home to roost and the early stages of digital technologies began impacting human labor.

Stocks and bonds were destroyed in the 1970s. Investing capital in industrial production no longer generated outsized profits.

The 1980s ushered in a New Economy based on financial magic: the outsized profits flowed to those with access to credit and the tools of financialization: buying assets with borrowed money, selling the assets off in the global marketplace and reaping enormous gains by producing no goods or services.

We now inhabit a hyper-financialized economy in which the only way to get ahead is to speculate. For the middle class, this means speculating in housing: if you hit the jackpot and your house soars in value, then leverage this new wealth into the cash needed to buy a second property–or extract the equity to fund a more luxe lifestyle.

…click on the above link to read the rest of the article…

“Canada Is In Serious Trouble” Again, And This Time It’s For Real

April 27, 2018

“Canada Is In Serious Trouble” Again, And This Time It’s For Real

Some time ago, Deutsche Bank’s chief international economist, Torsten Slok, presented several charts which showed that “Canada is in serious trouble” mostly as a result of its overreliance on its frothy, bubbly housing sector, but also due to the fact that unlike the US, the average Canadian household had failed to reduce its debt load.

Additionally, the German economist demonstrated that it was not just the mortgage-linked dangers from the housing market (and this was before Vancouver and Toronto got slammed with billions in “hot” Chinese capital inflows) as credit card loans and personal lines of credit had both surged, even as multifamily construction was at already record highs and surging, while the labor market had become particularly reliant on the assumption that the housing sector would keep growing indefinitely, suggesting that if and when the housing market took a turn for the worse, or even slowed down as expected, a major source of employment in recent years would shrink.

Fast forward to last summer, when the trends shown by Slok three years ago had only grown more acute, with Canada’s household debt continuing to rise, its divergence with the US never been greater…

… making the debt-service ratio disturbingly sticky.

And yet despite all these concerning trends, virtually all of these red flags have been soundly ignored, mostly for one reason: the “wealth effect” in Canada courtesy of its housing market grew, and grew, and grew…

Looking at the chart above, Bloomberg recently said that:

On a real basis, Canadian housing prices experienced a much smaller, shorter decrease in prices during the financial crisis and a much larger, longer increase in prices during the recovery. When you couple this unfathomable rise in housing prices with near-record high household debt-to-income ratios, the Canadian housing bubble starts to look scary should the tide turn.

…click on the above link to read the rest of the article…

Trade Wars Just Beginning…The War Is a Fight Over an Indefinitely Shrinking Pie

April 8, 2018

Trade Wars Just Beginning…The War Is a Fight Over an Indefinitely Shrinking Pie

From a growth perspective, it doesn’t matter if the world is 7.5 million or 7.5 billion persons…it only matters how many more there are from one year to the next. Economic growth (or the ability to consume more…not produce more) is about the annual growth of the population among those with the income, savings, and access to credit (or governmental social pass-through programs). That’s what this trade war is all about and why it’s just beginning. First it was a fight for decelerating growth…but now it’s about a shrinking pool of consumers.

Nowhere is this decline in potential consumers more acute than East Asia (China, Japan, N/S Korea, Taiwan, plus some minor others). I have previously detailed China’s situation HERE but the chart below shows the broader East Asia total under 60 year old population (blue line) and annual change in red columns. Peak growth in the under 60yr/old population (consumer base) took place way back in 1969, annually adding 22 million potential consumers. As recently as 1988, an echo peak added 19 million annually but the deceleration of growth since ’88 has been inexorable. Then in 2009, decelerating growth turned to decline and the decline will continue indefinitely. What began as a gentle decline is about to turn into progressively larger tumult. By 2030, the under 60yr/old population will be 9% smaller than present. East Asia’s domestic consumer driven market is collapsing in real time and it’s reliance on exports greater than ever.

The chart below shows the total 0-65 year old global population (minus Africa and India…blue line) and the annual change in that population in the red columns. Why excluding Africa/India? Because they represent nearly all global population growth, consume less than 10% of the global exports, and haven’t the income, savings, or access to credit to consume relative to the rest of the world. Growth (x-Africa/India) peaked in 1988, annually adding 52 million prime consumers.

…click on the above link to read the rest of the article…

The Future Ain’t What It Used To Be

March 31, 2018

The Future Ain’t What It Used To Be

Looks like we’re in for a much rockier ride than many expect

This marks our our 10th year of doing this. And by “this”, we mean using data, logic and reason to support the very basic conclusion that infinite growth on a finite planet is impossible.

Surprisingly, this simple, rational idea — despite its huge and fast-growing pile of corroborating evidence — still encounters tremendous pushback from society. Why? Because it runs afoul of most people’s deep-seated belief systems.

Our decade of experience delivering this message has hammered home what behavioral scientists have been telling us for years — that, with rare exceptions, we humans are not rational. We’re rationalizers. We try to force our perception of reality to fit our beliefs; rather than the other way around.

Which is why the vast amount of grief, angst and encroaching dread that most people feel in western cultures today is likely due to the fact that, deep down, whether we’re willing to admit it to ourselves or not, everybody already knows the truth: Our way of life is unsustainable.

In our hearts, we fear that someday, possibly soon, our comfy way of life will be ripped away; like a warm blanket snatched off of our sleeping bodies on a cold night.

The simple reality is that society’s hopes for a “modern consumer-class lifestyle for all” are incompatible with the accelerating imbalance between the (still growing) human population and the (increasingly depleting) planet’s natural resources. Basic math and physics tell us that the Earth’s ecosystems can’t handle the load for much longer.

The only remaining question concerns how fast the adjustment happens. Will the future be defined by a “slow burn”, one that steadily degrades our living standards over generations? Or will we experience a sudden series of sharp shocks that plunge the world into chaos and conflict?

It’s hard to say. As Yogi Berra famously quipped, “It’s tough to make predictions, especially about the future.” So, it’s left to us to remain open-minded and flexible as we draw up our plans for how we’ll personally persevere through the coming years of change.

But even while the specifics about the future elude us today, “predicting” the macro trends most likely to influence the coming decades is very doable:

…click on the above link to read the rest of the article…

What Does it Mean, Saving Rate drops to 12-Year Low when 50% of Americans Don’t Have Savings?

January 30, 2018

What Does it Mean, Saving Rate drops to 12-Year Low when 50% of Americans Don’t Have Savings?

Or what the averages are hiding.

We will start with income and see what’s left over, and for whom.

Personal income increased by 4.1% in December from a year earlier, the Bureau of Economic Analysis reported today. This includes all income received by all persons from all sources, such as from labor, financial assets (dividends and interest income but not capital gains), business activities, homeownership (rentals), government transfers, etc.

“Real” personal income — adjusted for inflation via “chained 2009 dollars” — rose only 2.37%. This is for the US overall.

Per-capita “real” personal income – which accounts for 0.71% population growth in 2017 and measures income per individual – rose only about 1.7%. If the inflation measure even slightly understates actual inflation as experienced by these individuals, their personal income growth might go away entirely.

Next step down…

Disposable personal income – personal income less personal taxes – increased 3.9% year over year in December. This is the income that folks have available for spending or saving. “Real” disposable personal income rose 2.1%. And on a per-capita basis, it rose only 1.4%. So these are not exactly huge increases.

Not everyone is getting this income growth equally.

The economy can be divided up into layers. Bridgewater Associates founder Ray Dalio sees a split between the top 40% of income earners for whom the economy is doing well, and the bottom 60% for whom the economy is a series of setbacks. Or by it could be 30% and 70%. Wherever the split is drawn, the smaller group of top income earners has had it good while the larger group of income earners at the bottom is struggling.

But consumers, no matter what their income levels, are trying to do their best to prop up the economy, upholding an American tradition. And they’re spending more, the Bureau of Economic Analysis reported today.

…click on the above link to read the rest of the article…

How Central Banks Widen Wealth and Income Gaps

November 10, 2017

How Central Banks Widen Wealth and Income Gaps

The Federal Reserve’s latest Survey of Consumer Finances, according to Federal Reserve Governor Brainard, shows that the share of income held by the top 1 percent of households has risen from 17 percent in 1988 to 24 percent in 2015, and that the wealth held by that same group rose from 30 percent in 1989 to 39 percent in 2016.

There are many explanations of why the gap between the rich and the poor widens. Governor Brainard attributes some of it to labor market disparities relating to geography and to race and ethnicity. She and Robert Frank say it results from the wealthiest households being much more likely to invest additional money received than those in other income groups. Vincent Del Giudice and Wei Lu blame automation and robotics. John Tamny says it is a consequence of the explosion in entrepreneurship that has benefited us all. A Tax Policy Center report concludes that it will widen even more if the president’s income tax overhaul is enacted.

The Brookings Institute held a conference to explore whether monetary policy widens the wealth gap. Mainstream economists support expansionary monetary policy because the income gap closes after mortgage payments are lowered when homes are refinanced at lower interest rates. However, a conference panelist and former Federal Reserve (Fed) board member Kevin Warsh referred to the Fed’s monetary policy during the financial crisis as being “reverse Robin Hood.” This view has merit because the Fed’s purchases of securities push interest rates down and expand the money supply. The expansion of money then inflates the prices of financial assets, which are disproportionately owned by the rich.

In a previous article for Mises Wire, I discussed data that seems to support both sides of the Brookings debate.

…click on the above link to read the rest of the article…

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