Digging Into Declining Income

America, by many foreigners believed to be the land of milk and honey, is experiencing a rude awakening because of the most recent economic upheaval.
Digging Into Declining Income
10/9/2012
Updated:
10/10/2012

America, by many foreigners believed to be the land of milk and honey, is experiencing a rude awakening because of the most recent economic upheaval. 

The September jobless rate, reported on Oct. 5 by the U.S. Bureau of Labor Statistics (BLS), is still high at 7.8 percent, although it is 1.2 percent lower than at the end of September 2011. With 12.1 million people unemployed, of whom 4.8 million have been out of job for 27 weeks or more, the United States could lose its status as one of the 10 wealthiest nations in the world. 

Real earnings, which are defined as all earnings adjusted for inflation of the consumer price index, decreased by 0.7 percent in August. The decrease was not due to a decrease in actual wages, but to a 0.6 percent increase in the BLS Consumer Price Index for All Urban Consumers (CPI-U), resulting in a decrease in purchasing power. In other words, consumers are paying more for their purchases. 

Real average hourly earnings had increased by 0.3 percent in October 2011, up from -0.1 percent in September 2011. Earnings then moved up and down, peaking in May 2012 at 0.4 percent, after which they continued to decrease until reaching -0.7 percent in August. 

In August 2011, real average hourly earnings were $10.22, peaked in July 2012 to $10.29, then plummeted to the August 2011 level of $10.22 in August 2012. 

Household income, representing income from work-related activities, and capital income, representing income from investments, are on a downward spiral because of trade-related factors, according to a Sept. 25 economic commentary, published by the Federal Reserve Bank of Cleveland. 

“This decline was caused by several factors, including a change in the technology used to produce goods and services, increased globalization and trade openness, and developments in labor market institutions and policies,” according to the Fed article. 

Disagreement Among Income and Wage Analysts

An article on the Seeking Alpha website does not quite agree with the BLS numbers. The article suggests in its headline that “Wage And Salary Growth Is Accelerating.”

To prove the analysis is up to par, the article states, “How do we know that? We track daily income tax withholdings from all wage earners whose salaries are subject to withholdings. Growth in income tax withholdings is up 2% year-over-year since June.” 

Stating it more precisely, the article suggests that total U.S. earnings increased by $133 billion on an annualized basis, accounting for almost 1 percent of the U.S. gross domestic product (GDP). GDP is the value of all goods and services produced in the United States in a given period. 

If the assumptions by the Seeking Alpha article are on the right track, third quarter GDP in 2012 has to increase by 1 percent from its low of 1.7 percent at the end of second quarter. 

Also, there seems to be disagreement with the BLS employment growth statistics, which suggest that in August, job growth was 96,000 (revised to 142,000 on Oct. 5). The withholding tax formula used by the Seeking Alpha article suggests that U.S. jobs increased by 185,000 jobs. 

The reason for the increase in jobs apparently has to do with an improved housing market. Housing demand is growing with income rising and mortgage interest being low in the foreseeable future, given the latest Federal Reserve’s open-ended QE3 (quantitative easing—a monetary policy by central banks that is believed to increase the money supply).

“Will this growth spurt last? Who knows? One thing we can say for sure, however, is barring some sort of international catastrophe, growth will likely last at least through Election Day, Tuesday, November 6,” the Seeking Alpha article suggests.

Rising Wages Are a Pipe Dream

“Real median household income in the United States fell between the 2010 ACS [American Community Survey] and the 2011 ACS, decreasing by 1.3 percent from $51,144 to $50,502,” according to a September U.S. census report. 

From 2010 to 2011, Vermont was the sole U.S. state where the real median household income increased, in this case by $2,069, while there was no U.S. state where income increased between 2009 and 2010. The ACS indicates that median household income increased in 33 states between 2006 and 2007. 

The 2011 ACS results are important statistics used by many U.S. business sectors—from retailers to real estate professionals, as well as city planners—to predict future demographic and market changes.

“The American Community Survey provides reliable, local statistics about our nation’s people, housing and economy that are indispensable to anyone who has to make decisions about the future,” said Thomas Mesenbourg, acting director at the Census Bureau, in a Sept. 19 press release. 

Vanishing U.S. Jobs

“Between 2010 and 2020, the United States is expected to add nearly 20 million new jobs. … Certain medical and personal care jobs will grow by 50% or more as the baby boomer population ages and their needs increase. Other occupations, however, will decline considerably,” an August 24/7 Wall St. article states. 

The majority of jobs will be lost by the U.S. postal service (USPS), given the latest communication devices and improvements, which make interaction between individuals and businesses faster and more efficient. By 2020, the USPS will cut its workforce by 140,000 people, representing 28 percent of its employees. 

The textile industry has been on its last legs for years, given that most textile jobs have been outsourced to foreign countries, such as India, Pakistan, Bangladesh, Guatemala, and other countries. 

Between 2010 and 2020, 6,200 out of 44,200 jobs will be lost in the petroleum refining industry. The printing industry will lose around 8,100 out of 50,800 jobs by 2020, and semiconductor jobs will be lost to robots, accounting for 3,800 out of 21,100 jobs by 2020. 

“Changes in population and technology also will lead to certain jobs shrinking dramatically or even becoming obsolete—if they are not already. Using Bureau of Labor Statistics (BLS) information on thousands of separate occupations, 24/7 Wall St. identified 10 job categories that will shrink by at least 14%, and in some cases by much more than that,” the 24/7 Wall St. article states. 

Cities Experiencing Large Job Losses

“Ten metro areas from all over the country had at least a 5% decrease in the number of employed people since the summer of 2009, when national unemployment was close to its worst point,” according to another August 24/7 Wall St. article. 

The U.S. cities that have lost the most jobs include: St. George, Utah (5 percent job loss), Carson City, Nev. (5 percent), Alexandria, La. (5.2 percent), Madera-Chowchilla, Calif. (5.5 percent), Flagstaff, Ariz. (5.6 percent), Michigan City-LaPorte, Ind. (5.7 percent), Prescott, Ariz. (5.8 percent), Champaign-Urbana, Ill. (5.8 percent), Brunswick, Ga. (6.1 percent), and Dalton, Ga. (8 percent). 

“In St. George [Utah], Prescott, Ariz., and Michigan City, Ind., the labor force—comprised of the number of people employed and those looking for employment—has fallen by more than 5%, as people have either given up their job search or have left the area,” the 24/7 article suggested.

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