§ For much of the past fifteen months, personal income on a real per capita basis had been declining due to inflation pressures and non-uniform income distribution. Since the early part of 2012, inflation pressures have largely abated (as indicated below) providing some relief for personal income. As a result, the trend in personal income has changed back toward rising income, but only slightly since only the inflation trend has changed. Unfortunately, the income distribution problem remains unresolved.
Inside the numbers, almost a third of the gain in personal income in June was from “Income on Assets”. That’s not a bad thing at all, but it is not a uniform method of getting income to all income segments since it’s largely concentrated in the upper ends. From October of last year, more than 25% of the gain in personal income has been on asset income. Throw in the imputation of “Rental Income” and these two segment together account for almost 35% of the total gain over that period.
At the other end of the income scale, however, unemployment insurance and “other” government transfers have decreased (from an annual rate of about $546bn to $513bn). If you look at the distribution of “income” as estimated here it is clear DPI is being concentrated at different ends of the spectrum (chart below). Yes, the trend in 2012 is moving in the right direction at a very slight pace, but is it reaching the bottom levels where all the economic torpor is?
I think that is why the savings rate is moving up despite the movement in income – it is decidedly non-uniform. Those at the bottom are doing worse despite some improvements elsewhere. Those without jobs altogether are now finding themselves with even fewer options for acquiring currency units.
§ Friday was payroll day and the headline for the establishment survey got most of the attention. There are always some discrepancies between the household survey and the establishment survey, but within the household survey we remain concerned about the composition of the employment picture as it relates to potential income and therefore spending. Despite the headline improvement, the household survey showed a seasonally adjusted decline in full-time jobs of 228,000. Part-time employment increased by 31,000 on a seasonally adjusted basis.
Compared to July 2011, the level of full-time employment has risen by 2.4 million while part-time employment advanced 300,000, but those rates have not kept pace with the 3.7 million new estimated members of the civilian non-institutional population (potential labor force participants). As a result, the participation rate has fallen from 64% in July 2011 to 63.7% in July 2012.
Average hourly earnings, estimated in the establishment survey, rose a rather uninspiring 1.7% over July 2011 and only $0.02 from June 2012.
§ The ISM Manufacturing index posted a second consecutive reading below 50, something not seen since mid-2009. Ominously, only three of sixteen industries reported expansion in new orders. The backlog of new orders continued to decline, from 49.5 in April 2012 to 43.0 in July 2012. Of the fourteen industries reporting, only three indicated an increase in their new orders backlog. The eleven industries reporting declining backlogs were: Nonmetallic Mineral Products; Wood Products; Miscellaneous Manufacturing; Furniture & Related Products; Transportation Equipment; Computer & Electronic Products; Paper Products; Machinery; Fabricated Metal Products; Food, Beverage & Tobacco Products; and Apparel, Leather & Allied Products. GDP growth since 2009 has largely been related to, on the business side, business investment in computer and transportation equipment. The dramatic inflection in the pace of new orders and the backlog of new orders conforms to the pace of activity seen in a broadening cross section of data points and surveys. The ISM Manufacturing, together with the regional Fed manufacturing surveys, confirm that growth has slowed rather aggressively and that trend is not isolated to individual regions or industries.
§ In its non-manufacturing survey, the ISM indicated a slight improvement mostly due to the current activity/production subindex: up 5.5 from June to 57.2. In that component, however, the large increase in the subindex was incongruous relative to the underlying respondent results – there was little change from respondents in July from June: only 1% indicated higher activity, but that was equally matched by a 1% increase in those indicating lower activity. Based on those numbers alone the level or pace of current production is not consistent with a large improvement in the index level.