Here’s why early tomorrow morning, Sydney time, the US Federal Reserve is widely expected to reveal plans to either spend more to try and boost US economic activity, or allow interest rates to remain at their current record lows for another year — into 2015: US poverty remains endemic, real median income is falling (and is at a 16-year low), consumers continue to delever, and there’s little sign of that changing on its own.
The data also makes you wonder if the current high level of US sharemarkets (the highest since 2007) and corporate profits are a house of cards, based as they are on very weak support with millions of Americans unemployed, under-employed or just vanished from the labour force. The US jobless rate was 8.1% in August; more than 12.5 million people were unemployed and 5 million of those were long-term unemployed. As well 10 million other people are either working a few hours a week, or looking for work. Data out earlier this year shows about 46 million Americans are receiving food stamps to help them eat each week.
Figures from the US Census Bureau in a report released overnight showed there were 46.2 million Americans in poverty in 2011, The poverty rate was 15%, down from 15.1% in 2010. The cut-off for the poverty rate is an annual income of about $US23,000 a year. That’s one in every seven people still in poverty. And America’s median income has fallen to its lowest level in more than a decade, hardly the stuff of a vibrant, growing economy. The continuing high level of unemployment, ongoing home foreclosures and weak economic growth are some of the factors behind this gloomy report, as well as the country’s high debt, deficit and the millstone of political gridlock in Washington and in many states.
So the US economy is growing at less than 2% this year and faces more of the same. Then there’s the so-called fiscal cliff of tax rises and spending cuts from January 1 (if not dealt with earlier) and the spectre of Moody’s cutting the US credit rating from AAA if a meaningful debt/spending deal isn’t done that locks in medium-term gains. All this will likely add to the ranks of the unemployment, people in poverty and further depress US household incomes.
Given what we have seen since 2008, it’s no wonder the median income of US households fell to its lowest level in 16 years, since 1995, dropping 1.5% (on a real or inflation adjusted basis) from 2010 to $US50,054 in 2011. At the same time the Gini coefficient, a measure of income inequality, increased (by 1.6%) on an annual basis for the first time since 1993. In fact, real median income last year was down 8.9% from a recent peak in 1999, and is lower than when the recession began. The Census Bureau said that real median household income was 8.1% lower than in 2007, the year before the recession started. The average American is getting poorer, and richer Americans are getting wealthier.
There is every chance real median income will fall below the $US50,000 level in the current two-year period (the next survey will be in 2013). And, given that continuing weakness, it’s no wonder ordinary Americans continue to delever their debts. Data from the US Fed’s New York branch late last week showed dramatic falls in the size of the US consumer debt.
The latest data underlines why the US Federal Reserve is talking about a possible third round of quantitative easing, not to stop deflation or lower interest rates further — they were achieved with the first two, but to try to start an assault on unemployment. The Fed’s decision will be out in the early hours of tomorrow and chairman Ben Bernanke holds his usual quarterly press conference as well.
At the end of June, US credit card debt fell to its lowest level in a decade: the $US672 billion owed is a massive 22.7% under the peak in 2008. The number of cards on issue dropped to 383 million, or 23% under the 2008 peak, with the number of applications falling (that’s also due to tougher criteria for lending and giving out cards by banks and issuers, and to debt write-offs and people losing their cards when they default on home loans).
And total consumer borrowing at the end of June was $US11.3 trillion, some $US1.3 trillion or more than 10% under the 2008 peak. The areas of credit to have risen since 2008 are student loans (where the level of write-offs each year is running at more than $US15 billion, which is another emerging problem) and car loans, which are helping drive the strongest car sales in the US for five years. Most of the fall in consumer credit has been due to the drop in mortgage debt from foreclosures, early repayments or smaller loans in refinancings. On top of this Americans are saving: the country’s savings ratio was running at 4% in July, five years ago it was 1% or less (that’s similar to Australia where our savings rate is 9% at the moment).
Except for cars, this deleveraging, the high unemployment, the continuing high number of people in poverty and receiving food aid, tells us the outlook for the US economy is for more years of low, slow growth, and there’s nothing the Fed can do short of giving millions of Americans a free gift of money every month for a couple of years and urging them to spend, not save.
Changes in life style are slowly becoming compulsory, living beyond our means has become very hard if not impossible, because unlimited credit is just not so easy anymore. What happens when the phrase too big to fail, is no longer enough to sustain the world wide round robin of borrowings know by some as a ponzi scheme? Edward James
And people in the US are seriously discussing re-electing Obama? PT Barnum was right, but possibly its more frequent than every minute.
Mike – and what would Romney do except make it worse faster?
Mike, the cause of the runaway debt is largely (not entirely, though) due to the Republicans, with the big growth in government debt occurring under Ray-gun Reagan. And if you remember, the wheels fell right off on Bush’s watch, right at the end of his eight year tenure. The Republicans are also intent on winding back the health insurance reforms which will impact the poor most of all.
But, more to the point of this article, both parties are paying scant attention to the poverty issue because there’s no votes in it, i.e. poor people don’t vote. And, if the SBS’s recent report is accurate, and I have no reason to doubt it, in response the poor are turning their backs on politics, which does nothing to further their cause; they need to vote!
I’m lower middle class, not at all rich, but I consider myself very well-off. I am so very pleased we have compulsory voting, I think it’s a great wealth leveler. I suspect it’s significant contributing factor as to we don’t have slums or ghettos (perhaps with the exception of the original Australians). And, if it means I pay higher taxes then I might otherwise, so be it. I don’t ever want to see mass poverty here, or enjoy a higher standard of living on the slaving backs of an underclass, as I suspect is the case in USA.
But, while we may not (currently) have great swathes of poverty, I am not under any delusion that we don’t have significant instancces of it. I fervently hope the political drive is to vigorously and continuously adress issues of poverty and deprivation; there’s always room for improvement.
What would go a long way to improving the situation is a better informed public, but I’ll end my little rant without taking the lid off that can of worms.
@Malcolm: As yet, we do not know that. But you can project that Obama doesn’t have anything new to try, and that’s been an abysmal failure.
@Alex: Reagan isn’t the one who dismantled most of Glass-Steagall (the US banking act) which precipitated the GFC. That was Clinton. If you want to blame any past administration, blame that one. As per another post, overall I’m glad we have compulsory voting. It might have some issues, but overall it’s good.
en.wikipedia.org/wiki/Glass%E2%80%93Steagall_Act
It’s a very long article, here’s the relevant paragraph