WSJ pronounces recovery strong

According to the Wall Street Journal, it is "a canard" to claim that "workers are doing far more poorly than they did" in the 1990s expansion:

The latest reports on wages and income have been rolling in, and with them we can discount one more canard about the current economic expansion--namely, that wages are stagnant and workers are doing far more poorly than they did in that second Age of Pericles known as the 1990s.

Over the past year, the real average wage for non-supervisory employees has risen 2.8%. That equates to about a $1,200 increase in purchasing power for the typical household this year. Last year, real median household income was also up 1.1% after inflation. This rise in take-home pay helps to explain how Americans have had the disposable income this Christmas shopping season to pay $600 for PlayStation 3 computer games and $150 for the Kid-Tough Digital Camera for three-year-olds.

It is true that income and wages are still about 2% below the peak they hit in 2000 before the dot-com bust and recession. But a new Treasury Department analysis finds that, measuring from the start of the peak of each expansion, wages so far in this decade's cycle are running ahead of the recovery pace during the 1990s. Thus the "stagnant wages" story can join the "jobless recovery," the "outsourcing" crisis and the runaway budget deficit as other tales of woe that have all turned out to be evanescent.

But as the Center on Budget and Policy Priorities points out in this table, median income growth during the recovery has been poor:

Here's how CBPP summarizes the 2005 income data:

Overall median household income rose modestly in 2005 — but significantly less than normal for a year during an economic recovery — while the poverty rate remained unchanged, also an unusual development for a recovery year. For the first time on record, poverty was higher in the fourth year of an economic recovery, and median income no better, than when the last recession hit bottom and the recovery began.

In addition, the 1.1 percent increase in median income that occurred in 2005 was driven by a rise in income among elderly households. Median income for non-elderly households (those headed by someone under 65) fell again in 2005, declining by $275, or 0.5 percent. Median income for non-elderly households declined for the fifth consecutive year and was $2,000 (or 3.7 percent) lower in 2005 than in the recession year of 2001.

Furthermore, the poverty rate, at 12.6 percent, remained well above its 11.7 percent rate in 2001, while overall median household income was $243 lower in 2005 than in 2001 (not a statistically significant difference).

Postscript for WSJ editors: No one is spending $600 on Playstation 3 "computer games." The PS3 is considered a console, not a computer, and people are spending $600 (or more) to buy the system, not the games, which generally cost $50-$60.

Comments

[Matthew Cooley]

A postscript to yours: bringing up the PS3 is either a sign of the WSJ's journalistic and intellectual laziness or simply their shameless dishonesty. There were less than 200,000 of them shipped to the United States, so the fact that they sold out (allegedly; I saw them on shelves in Toys R Us at Times Sq.) is an utterly meaningless way to gauge the financial health of the sub-rich.

People DID NOT buy the PS3 in significant numbers. Whether they would have if more had been available is debatable. But hypothisizing about what consumers maybe would have bought if the thing had been available, and using that guess as evidence of a thriving lower and middle class is idiotic.

[Seth]

a post-post-postscript: the spending of 600 dollars does not prove the public has 600 dollars to spend in this era of readily accessible unsecured consumer debt.

[Tom at BizzyBlog]

The Treasury announcement the WSJ referred said this in its third para:

+++++++++++++++++++++++

One way to look at the health of the economy is to view where we are compared to previous business cycles. Real hourly wages are up 1.1 percent versus the previous business cycle peak in early 2001. That means workers are today earning more per hour in real terms than they did at the height of the 1990s expansion. By comparison, at the same point in the business cycle of the 1990s, real hourly wages were down 2.1 percent.

+++++++++++++++++++++

The poverty rate has its own set of problems in that it ignores Earned Income Credit increases, Bush's cut of the lowest bracket to 10%, and the 20-year impact of deep discounters like Wal-Mart making everyday stuff cheaper in real terms by an average of $2,329 per year (per Global Insights, and ignored by the Census Bureau). Surely a typical poor family is benefiting from the deep discounters on the order of at least $1,000.

Though it's reasonably impressive, the recovery isn't as strong as it could or should be thanks to sand in the wheels like SarBox, Reg FD, and the like.

[Noumenon]

One way to look at the health of the economy is to view where we are compared to previous business cycles. Real hourly wages are up 1.1 percent versus the previous business cycle peak in early 2001.

That directly contradicts the chart that Brendan quotes above. Okay, I can see how if you take the September chart and add the Treasury report's 0.5% October wage growth and 1% November wage growth, you go from -.5% to +1.1%. But could the same two months have taken the 1991-1995 growth from +2.9% to -2.1%? If that's possible, these comparisons have no meaning.

Is there any weaseling in Bush's numbers? For example, the 2001 business cycle peak was in March. Comparing November to March, I'd think you should do a seasonal adjustment. But I know Bush would do the raw numbers if it made him look good.

[Brendan Nyhan]

I think all the numbers are seasonally adjusted. Speculating, I think the explanation for the discrepancy Noumenon mentions above may be that the number of hours worked and number of jobs recovered better in the 1991-1995 period even if wages took longer to push up. See, for instance, this post from March on how poor job growth has been in this recovery.

[Noumenon]

Ah! Income versus wages. That clears up the contradiction, at least.