Income is rising and so are wages. Even real income is up. But real wages are another matter.
Personal Income vs Hourly Wages Notes
- DPI means Disposable Personal Income. Disposable means after taxes.
- Real DPI means inflation adjusted using the Personal Consumption Expenditures (PCE) deflator. Real DPI is a BEA calculation.
- Average hourly earning are for production and nonsupervisory workers.
- Real wages are deflated by the Consumer Price Index (CPI) not the PCE.
- The BLS does not report a real hourly wage. I used the CPI-W index for production and nonsupervisory workers, produced by the BLS, as the deflator.
Personal Income Definition
The BEA defines personal income as “Income that people get from wages and salaries, Social Security and other government benefits, dividends and interest, business ownership, and other sources.” Rental income is a part of other sources.
Three Rounds of Fiscal Stimulus
- Round 1, March 2020: $1,200 per income tax filer, $500 per child(CARES Act) – Trump
- Round 2, December 2020: $600 per income tax filer, $600 per child (Consolidated Appropriations Act, 2021) – Trump
- Round 3, March 2021: $1,400 per income tax filer, $1,400 per child (American Rescue Plan Act) – Biden
The three rounds of free money fiscal stimulus (literally a helicopter drop), plus eviction moratoriums put an unprecedented amount of money in people’s hands. In addition, unemployment insurance paid people more to not work than they received working.
The third round of stimulus under Biden was totally unwarranted. However, it is also worth noting that Trump wanted a much bigger second stimulus package than the Republican Congress gave him. Trump is no fiscal hero.
The three stimulus packages, on top of supply chain disruptions, energy disruptions due to the war in Ukraine, and Bidenomics in general, set in motion the biggest wave of inflation in over 30 years.
Income and Wage Change
- DPI rose from 116.4 pre-pandemic to 143.5 in November of 2023. That’s an increase of 27.1 percent.
- Real DPI rose from 110.7 pre-pandemic to 117.7 in November of 2023. That’s an increase of 27.1 percent. That’s an increase of 6.3 percent. But much of that income increase is in the form of interest income, dividends, and rent. The average joe does not have much interest income or dividends. The average Joe does not collect rent. The average Joe pays rent. More accurately 36 percent of the nation rents but it is the lower socioeconomic groups that are hit hardest by inflation.
- Average hourly earnings for production and nonsupervisory workers rose from 110.2 to 134.3. That’s an increase of 21.9 percent. But as the next line show, that big boost in wages did not buy much.
- Real average hourly earnings rose from 101.7 to 103.5. That’s an increase of 1.8 percent. But all of it came early. Hourly earnings rose in the recession because the lowest paid workers were the first to lose their jobs.
The index of real hourly wages peaked at 106.1 in the recession, declined a bit, then hit 106.1 again in December of 2021.
In the last two years (minus a month), real hourly earnings are down by 2.5 percent.
Rent Jumps Another 0.5 Percent
Rent of primary residence, the cost that best equates to the rent people pay, jumped another 0.5 percent in November.
Rent, which is sticky, rose at least 0.4 percent for the 28th consecutive month.
For discussion, please see Rent Jumps Another 0.5 Percent, Only a Decline in Gasoline Prevents a Hot CPI
36 percent of the nation rents, but it’s the lower socioeconomic groups hit hardest by inflation. Whites are more likely to own than blacks. The black percentage ownership is about 43 percent according to the National Association of Realtors.
Although wages are up 21.9 percent in nominal terms, real wages are down 2.5 percent in the last two years.
With so many struggling from inflation, free money to Israel and Ukraine does not help perceptions of how Biden is doing. And neither does the border.
“Does hourly wage include equity compensation?”
Good Question
No. The BLS also does not include benefits like health insurance.
But low-tier workers often don’t get much in the way of bonuses. And health care benefits are unseen. It’s not spendable money.
Nor are IRA contributions spendable. Some don’t contribute to matching plans because they need every penny now.
Your post was a standout read. The way you’ve articulated your points shows a lot of skill and understanding of the subject.
Interesting chart(s), if the data is correct.
Several years ago, I read an interesting article that I believe was entitled “What if the Algorithms Are Wrong?” Then, it was an interesting concept that had not been much explored. Today, the concept is so commonly discussed that the original article cannot easily be found with a search engine. This is the closest posting I can find that is similar to the original article.
link to angrybearblog.com
It’s a brave new world if data is skewed and algorithms are designed for a pre-determined result (pun-like comparison intended).
Does hourly wage include equity compensation? the fraction of my pay that comes from equity and bonus rather than regular salary has been increasing dramatically every year recently. This might be a general trend.
“Does hourly wage include equity compensation?”
Good Question
No. The BLS also does not include benefits like health insurance.
But low-tier workers often don’t get much in the way of bonuses. And health care benefits are unseen. It’s not spendable money.
Nor are IRA contributions spendable. Some don’t contribute to matching plans because they need every penny now.
Real income was rising until Dec 31, but from Jan 2nd 2024 income might fall.
Part time workers will work less and distressed co will layoffs. The unions fantasia
might not last long. HR will crush them.
“Income is rising and so are wages. Even real income is up. But real wages are another matter.”
By order of the state, the fast food worker minimum hourly wage in California, is now $20 an hour. Just before the New Year, Pizza Hut fired all its delivery drivers. McDonald’s announced they would raise prices.
In 2024 the US will need to refi around $5Trillion of US debt. If the anticipated deficit is $2T plus the cost of refi the $5T, the US interest expense is about to explode. Thus, costs (interest) will not go down.
“Traditional macroeconomics predicts that persistent twin deficits will lead to currency devaluation/depreciation that can be severe and sudden.”
This cost of interest argument is quite common but very much overrated. The 10-year rate is at 4 percent. If inflation stays around 3 percent, the real rate is 1 percent. If the bond holder happens to be liable to pay US tax on interest and the marginal rate is 30 percent, the after-tax real interest is -0.2 percent. Nothing “explosive” here. That said, fiscal policies under both Trump and Biden have been a national disgrace.
ZH article on student loans yesterday – comments thread was interesting. The 2 long-time usual camps weighed in: 1) they signed contract, they are responsible, no forgiveness, bailouts, accommodations, nonsensical majors, etc.: 2) the younger generation is screwed, its different this time, etc. But now a growing third camp: let all government financialization including this one burn to the ground.
When Joe expired they will build pyramids.
Jan 1st 2024 : the mag7 suck !
California raised the minimum wage for fast food workers to $20/hour. Pizza Hut promptly discontinued delivery and laid off 3000 workers.
There was no transfer money in Egypt. Joe knew cycles. Dinah, Jacob & Leah
daughter, was raped. Her brothers brutally retaliated. Her daughter Aussie was
sold to Pharaoh assistant. Joe was dumped underground until he was sold to the same assistant. Joe became Egypt’s VP. His father’s family lived in an upscale suburb, until Pharaoh and Joe died. They became slaves, building pyramids, bc they had no money to buy food.
Anyone living in a moderately large city can see the economic decline getting worse on a monthly basis. More brick and mortar store closures, more people walking around in filthy closes, rudder drivers, more cars with tail lights out, worse road maintenance, etc. Food, rent, and medical prices are becoming scary to many people… In general, bigger discrepancies between what people see on the visual media and the reality people experience. 100,000 people dying from fentanyl (and similar drugs) poisoning per year.
One third of the USA population is third world and unfit for industrial civilization. They are paid more than they are contributing. Prices for labor in the USA must adjust to the ability of the workforce unless the workforce adjusts to the needs of civilization. At a minimum civilized people can speak the language, read, write, and calculate the burden of compound interest on a student loan.
“They are paid more than they are contributing”
That would apply to the Teacher Unions.
That would apply to Automotive Unions.
That would actually apply to all Public Unions.
That would apply to most NGO’s.
That would apply to most Influencers.
That would apply to Climate Change Warriors.
Hell, that would apply to a great % of Government Workers.
Maybe we should think about doing a list of who is earning their keep? Like Police, Fire, Military, Churches, etc. it is A Lot Shorter, and much easier to come up with, because they are so obvious…
Police and and fire are in public unions which is #3 in your list. One of the main reasons why there is very little accountability in the police force. I wouldn’t want the job and I actually believe that a maximum of five years as a policeman should be enforced. Psychological toll is too great.
I have no beef with fireman except when the interpretation of the law changed and they began collecting overtime for more than 40 hours per week, their work hours decreased and their pay increased. They typically work two to two and a half days per week with 24 hour shifts. I have met a lot of fireman retired at 45 or so and then they get second careers. Many also have a second job while they are working as a fireman. And there is a great oversupply of candidates that want the job.
Police and Fire shouldn’t be in Public Unions, just like a lot of others that are, which is why I pointed them out. A lot of reasons, but most know them.
I also agree, in some instances, for protection from the stress and illness as a result for them. Same reason we should have term limits on public Politician’s, to protect the Public.
It looks as though we are on the same page for the most part, so to speak…
If “third world” mean entitled twits born in the USA; then I agree!
Interesting tidbit in the data. If rents have gone up at least 0.4% for 28 months (let’s say 15% overall … maybe you’ve got the number … then wages at 21.9% up are outpacing rent. This is not what I’m generally hearing.
So we have 2 years o actual decline in personal disposible income for the masses, being followed up (if you believe the 2-10s chart) by 2 years of recession, with layoffs starting in summer 2024… at the same time as the extreme wealthy 1% get even wealthier… say… somethin’ smells fishy… somethin’ ain’t right… what could it be…?!
This chart of course will play out across the world… it’s a global phenomenon… the UK and EU will follow 6 months after, and life across Europe is already hardgoing.
Political consequences look ripe to play out around the developed world… with various swings to the far left or far right, but it’s the far left that is most worrying because they will ideologically double down on the causes of this misery, and the backlash will consequently be even worse by the end of the decade.
People like to think all of this is planned, but they truly underestimate the incompetence and self-servingness of the elites in their bubble world of intrigue.
It’s inevitable that people fall in behind a populist who will throw those self serving elites on the chopping block, but 9 times out of 10 things only get worse.
So you’re saying there’s a chance!
Purchasing power of the Consumer Dollar has been dropping like a rock under Biden
link to ycharts.com
Let’s be serious. Real wages are exactly following their long-term trend. As noted in the post, the 2020 jump in real wages and decline afterwards is a statistical artifact (composition effect). Neither Trump nor Biden had ANY impact on the trend. Changing the long-term US real wage trend to the better would require a serious policy debate that nobody wants to have in this country.
What policies are you suggesting?
First, let’s stop blaming immigration, trade, and regulations. None of those seems to affect the US trend in real wages. Second, let’s focus on education, health care, and increasingly smaller/dysfunctional trade unions. All of those are good candidates for explaining why the US has a miserable long-term trend in real wages.
The greatest irony of that trend is that for 43 years wealthy entities have been receiving continually lower tax rates under the guise of “job creating tax cuts that pay for themselves”.
All the while a large portion of those jobs were created in China, Mexico, India…..
The one variable that could benefit the middle is demographics, baby-boomers retired faster than birth rate.
The bigger irony is that a large chunk of American voters that got stiffed over the last 43 years believe that a fat cat like Trump is going to do anything about the economic trends that matter for them. He will continue to cut his own taxes and make sure that his voters you get an even worse health care system than they already have.
I would add that even though the stock market is at or near all time highs, real inflation adjusted returns are down more than ten percent in the last two years.
If you separate the bloated top tech stocks, you get a very different stock market chart.
Same could be said for homelessness. Just remove CA and it’s not that bad. I get your point however. No other industry could survive if 99% of the businesses failed year after year unless it was fueled by cultural marxism and the government dumping massive bags of tax dollars at it which is exactly what is going on.
If you add returns in 2021, you get a completely different (positive) picture. What is relevant is (again) the long-term trend in real stock market returns, which is 6-7 percent for the S&P. Again, neither Trump nor Biden had ANY effect on this long-term trend in the stock market.
Yes, over the past three years, the stock market was up. However, when you factor in mortgage/rent payments, the price of automobiles and gasoline, cost of food and lower real wages, we are no better off than they were three years ago.
Many are worse off. Especially those who have to eat, drive, and pay for housing.
That’s true. But, on the politics of this, last time I checked POTUS is not setting the mortgage rate and does not set the prices of automobiles, gasoline, and food. And name one country where we didn’t see the same interest and price trends. On real wages, obviously the chart above says that from 2017 onward real wages increased by 1.7 percent until the pandemic hit, and since then real wages increased by 1.8 percent. The idea that real wages declined since 2020 is a statistical artifact.
No, Biden’s approval ratings are low because he abandoned the progressive agenda he ran on. 50% of the voters hate him regardless, so he’s lost vast numbers of the traditional Dem core. Why? Regardless of what the republicans try to claim, despite his lip service to the progressives, he is consistently right of center on everything. A political animal to his rotten core. The young people are maybe not as stupid as we olds like to think. And his blind and illegal support of the murderous regime in Israel has put the final nail in his political coffin. Good riddance. God help us in the short run with another Trump term or 3 – things are going to be rough – but in the long run maybe a real alternative will rise from the ashes.
One must be really far left to see Biden as “right of center on everything”. But I see your point when you add the Israel debacle to the border crises, Bidenomics stagflation, falling real wages and falling real stock market returns.
BWAHAHAHAH, HOHOHOHO, HEEHEEHEEHHEE… yeah, he just wasn’t “progressive” enough!!! FFS!
Promoting DEI and CRT are right of center? Promoting mass illegal immigration is right of center? Mandating worthless Covid shots is right of center?
The young are under Marxist indoctrination in public schools and universities. Equity and social justice is anti education. They are Marxist propaganda, supported by the Biden Administration.
The Biden admin literally gave money to Iran, and since money is fungible they can support Houthi and Hamas terrorists.
To be fair – it was Iran’s own money frozen by sanctions, and it was in exchange for the release of five Iranian-Americans….
I used all that “free” money to pay down debt because I know our taxes are going up. Speaking of which, wait until the real estate taxes start to reset – it’s gonna be lit. At this point virtually all that money has moved through the system and now we’re primed for all the corporate welfare to hit the system. The good times were good while they lasted.
“Trump is no fiscal hero”. Understatement of the century!
But he knows about bankruptcy.
Excellent, Mish!! And also consider this: Bidenconomy kicked in 12/1/21, 25 months ago. S&P500 (VOO), has gained zero, MidCaps (VO) and SmallCaps (VB), are down ~10%. Bond fund index funds bad too.
Combined with Inflation counting food & energy cumulative for 25 months, spells this: Retirees & near retirees without pensions , are MUCH poorer right now.
I would add that even though the stock market is at or near all time highs, real inflation adjusted returns are down more than ten percent in the last two years.
Like most effort’s Government attempts, to assist the poor, lower class, and middle class. They all fall far short of anything close to what they were represented as being.
Why else would all of that help, lead to higher taxes, higher rents, higher unemployment, higher homelessness, higher use of food banks, higher amount of drug use, etc.
The Government loves to play “Shell Games” with the money for the “underclass” so to speak. Look over here! All your school loans are paid (until there not), and we will give you free money for your children (as childcare skyrockets), You don’t have to pay rent (until your evicted that is), Co-Signers of loans for the Children (They are coming for you!).
The rich get richer and… you know the way this BS works.
Nothing is Ever Free…
Biden is the best man for the job now but I still prefer D,Trump because he is the friend
of V, Putin and WE need Russia as a partner.
You can seriously write that comment, with honesty?
Biden is the worst rated President in American History some have argued, but certainly the worst Modern Day President this Country has ever seen in office.
He/They, (Biden Inc.) has been an epic disaster, but isn’t really running anything obviously. He has a hard time speaking and requires 16-18 hours of sleep a day. He has taken more time off, than any President in History. He can’t even speak in coherent sentences for crying out loud.
It seems to be an intrinsic flaw of a civil state, as opposed to an ethnic one… humans need to team up to achieve big projects, but along the way there are always manipulators and parasites that seek to game the system to their own adfvantage.
At least in an ethnic state, you can appeal to the group as a kind of extended family.
In a civil state, all citizens are just like grains of sand in a giant amorphous desert, easy to betray and abuse especially when their bonds with others are broken.
The Republicans let the rich get richer and the Democrats take from the middle class to give to the poor, lazy, etc. Neither party cares about reducing spending.