Credit for the above chart goes to Bob Elliott
What if the big driver of increased HH demand to start the year was b/c of higher post-tax income and not seasonal adjustments or weather?
275bln in lower taxes plus 100bln in SS COLA hike and you get a 3%+ rise in disposable income alone.
Tax cut:https://t.co/Ywdzf84Puv
— Bob Elliott (@BobEUnlimited) February 27, 2023
Add to that the nice COLA from social security I talked about earlier:https://t.co/btQvVHS4il
— Bob Elliott (@BobEUnlimited) February 27, 2023
So probably we get a payback down the line on this when it flips from very positive to zero (for SS) or a drag (for taxes). But in the mean time, we could see meaningful “real” demand. Maybe that’s what’s happening here:https://t.co/oAJrgPquDI
— Bob Elliott (@BobEUnlimited) February 27, 2023
2022 vs 2023 Federal Tax Rates
Anything Else? Yes!
Minimum Wage in States with Increases in 2023
State Minimum Wage Increases
- 27 states raise minimum wages this year.
- 23 of them did so in January.
- Connecticut and Nevada increase their minimum wage on July 1 as shown above.
- Oregon has an increase on July 1, indexed to inflation at a rate based on the CPI.
- Florida has a minimum wage hike on September 30.
Minimum Wage Percentage Increases
Theory and Practice
Those are huge percentage hikes, at least in theory. In practice, is anyone really paying the low rates in the first chart?
Regardless, it’s important to understand that these minimum wage rates put constant upward pressure on companies.
People will think the minimum wage went up so my pay should rise too.
To reflect the jump in Disposable Personal Income, I added another line to my personal income chart.
Personal Income Six Ways Billions of Dollars
Disposable personal income is income after taxes. Since the tax rate went down, income went up.
Personal Income Percent Change From Previous Month
I added a new line to that chart as well, Real Personal Income.
Real (inflation adjusted) personal income dropped slightly in January. The BEA rounded to one decimal place reported no change.
Real DPI jumped 1.39 percent. Nominal DPI was up an even larger 2.02 percent.
The PCE price index rose 0.63 percent which the BEA rounded to 0.6 percent accounting for slight differences in my charts vs BEA reporting.
Net Result, Sticky Inflation
There is not going to be any increase in productivity from this. It’s just more money in people’s pockets supporting consumption.
Regarding wages, either corporate profits sink, or prices go up. And wage increases will be sticky even if the Fed manages to tame housing inflation.
What About Demographics?
Demographically Sobering Thoughts on US Employment in the Next Five Years
I strongly suspect most of the recent job growth is part time. Boomer retirements due to age demographics are accelerating.
The number of people 65 and older is soaring while those 55 to 64 is plunging. The participation rate of those 65+ is 19.3 percent.
The participation rate of those 55-59 is 72.7 percent and those 60-64 is 58.5 percent.
This puts an increasing demand for more labor.
Needing two part-time people to replace one as some workers flat out leave also puts positive pressure on the need for people.
Again, this is inflationary.
More Rate Hikes Priced In
Given all of the above, it’s no wonder The Market Prices In Still More Fed Interest Rate Hikes
And Because of demographic forces, I do not envision a huge rise in the unemployment rate in the next recession.
For discussion of demographics, please see Demographically Sobering Thoughts on US Employment in the Next Five Years
The Fed is going to have a hard time to say the least.
This post originated at MishTalk.Com.
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Mish
Just
look at Beveridge Curve (job openings rate vs. unemployment rate). See: “The Great Demographic
Reversal” by Charles Goodhart and Manoj Pradhan.
make the securities expensive relative to other instruments like overnight
index swaps, but also motivate investors that have access to the Federal
Reserve’s overnight reverse repurchase agreement facility to park more cash
there.”
Fed can keep unloading bonds even when officials cut interest rates at some
future date.”
Economic Adviser: Research Division, Federal Reserve Bank of St. Louis, Working
Paper Series
Rates Don’t”
But Powell thinks banks are intermediaries, lending savings to borrowers.
sterilize over-liquidity and get the money supply under control in order to
prevent inflation or over-heating”