|Stuck in the middle
||November 3, 2008
Stuck in the middle
"After median wages stagnated throughout
the Bush years while top earners benefited most,
those feeling the pinch will go to the ballot box in a
disgruntled mood" - Financial Times, London
- In the closing stages of the US presidential
campaign, John McCain has been pushing hard on
the idea that Barack Obama would "spread the wealth
around" - as the Democratic candidate this month
reportedly told the voter who came to be known as Joe
the Plumber. "That is what change means for Barack
the Redistributor," said Mr McCain on Monday. "It
means taking your money and giving it to someone
The Republican nominee's sounding of the alarm
resonates with portions of the US electorate, although
it has probably come too late to be a game changer.
But much larger sections of voters - those living in the
bottom 80 per cent - have been experiencing a means
of wealth redistribution in the past few years that has
led many of them to different conclusions.
- This kind of redistribution is of a different
complexion to the progressive taxation that Mr Obama
supports and which Mr McCain apparently no longer
does. It has come via the mechanism of the market
and has shifted wealth in the opposite direction - from
the middle classes to the wealthy. It long predates the
collapse of the subprime mortgage market last year
that lit the fuse for today's global financial crisis.
- Economists call it median wage stagnation.
Others dub it the "silent recession". Mr Obama, who
has struggled since the start of his campaign to
speak in an economic language that strikes a chord
with blue-collar voters, recently put it this way: "We are
now being battered by a very serious economic storm
and for many Americans it has only deepened the
quiet storms they have been struggling through for
- At this stage, the impact of the financial meltdown
on the longer-term structural problem of income
stagnation can only be guessed at - although it is
highly unlikely to improve the situation for most
American households. But the political effect has
been apparent for some time.
- In spite of the prominent role played by the
unpopular Iraq war in the outcome of the 2006
midterm elections, anxieties about the economy had a
greater influence on the result. According to exit polls,
more voters listed concerns related to the economy
than listed Iraq in an election that restored Democratic
control of both houses of Congress for the first time in
12 years. Since then, voter anxiety has only increased.
- In 2006, almost 70 per cent of American voters
said their country was on the wrong track. Now, more
than 90 per cent do. Then, a narrow majority believed
their children would be worse off than they are - an
astoundingly bleak sentiment for a country built on
optimism. Now, a clear majority say so. For most
Americans, the financial meltdown is only the cherry
on a very familiar cake.
- "You have to question whether conventional
measures of economic growth mean anything when
most people's incomes have either been stagnating
or declining for many years," says Jared Bernstein, an
economist at the liberal Economic Policy Institute and
an adviser to Mr Obama. "The fact that wage earners
are no longer getting the benefits of their improving
productivity in the workplace is something we have
never experienced [before] in modern America."
- The data are stark and go some way towards
explaining why so many Americans felt so disaffected
even during the most robust years of economic growth
under the Bush administration. Between 2000 and
2006, the US economy expanded by 18 per cent,
whereas real income for the median working
household dropped by 1.1 per cent in real terms, or
about $2,000 (£1,280, Eu1,600). Meanwhile, the top
tenth saw an improvement of 32 per cent in their
incomes, the top 1 per cent a rise of 203 per cent and
the top 0.1 per cent a gain of 425 per cent.
- Part of this was because the latest period of
economic growth failed to create jobs at nearly the
same rate as in previous business cycles and even
led to a decline in the number of hours worked for
most employees. Unusually for a time of expansion,
the number of participants in the labour force also fell.
But mostly it was because the fruits of economic
growth and soaring productivity rates went to the
highest income earners.
- Economists such as Lawrence Summers, who
was President Bill Clinton's last Treasury secretary
and is tipped by some to return to that role in an
Obama administration, say the income stagnation
crisis is America's most troubling long-term economic
- In contrast to the Clinton years - when there was
some growth in median income, although still at lower
rates than productivity growth - people such as Mr
Summers and Robert Rubin, his predecessor, are
now openly sceptical of the market economy's ability
to distribute socially desirable rewards.
- "It is critically important that the next administration
makes it a priority to focus on the structural causes
that hold back growth in workers' wages," says Mr
Summers. "That means reversing the perverse Bush
tax cuts, empowering labour in strategic ways, as well
as investing in healthcare, education and
- But Mr Summers, along with many of his peers,
concedes that finding the right policies will prove
difficult for such a complex and deep-seated problem.
Many reach for parallels with the "gilded age" of the
1920s that gave rise to unprecedented Great Gatsby-
style incomes at the top and was brought to a close by
the 1929 stock market crash and the ensuing Great
- Today's numbers also closely track that period.
According to Emmanuel Saez at the University of
California, Berkeley, the distribution of income today
almost exactly matches that of 1928 on the eve of the
Wall Street crash. In 1928, the top 1 per cent of
Americans took in 24 per cent of national income,
compared with 23 per cent today. Between 1940 and
1984 their share never exceeded 15 per cent and it
was in single digits for most of the 1960s and 1970s.
- At the close of the gilded age, voters were also in a
restless mood. Then, as now, policymakers are torn
between balancing the budget and investing in public
works through deficit-funded stimulus spending. The
Obama campaign informally estimates that next year's
budget deficit could go as high as $900bn - twice this
year's fiscal gap.
- Some in the Obama camp believe in returning in
the short-term to fiscal discipline. Others are
embracing the countercyclical spending
recommendations of John Maynard Keynes. That
debate appears yet to be settled.
- "Franklin Roosevelt actually tried to balance the
budget in the mid-1930s and it is safe to say it was
not his finest hour," says Douglas Elmendorf, head of
the Hamilton Project, a non-partisan think-tank that
addresses median wage stagnation. "I would say this
is the worst economic problem America has faced
since at least the recession of the early 1980s but, in
retrospect, median wage stagnation is a far more
difficult and complex problem to address."
- That is one reason why the term "median wage
stagnation" has not cropped up on the campaign trail:
it does not fit on a bumper sticker. Nevertheless, the
economic squeeze that has fuelled so much anguish
among voters is creating all sorts of difficulties for
Republican candidates in the least expected of states.
Republican senators seeking re-election in Georgia
(see below), North Carolina and Virginia, for example,
are vulnerable to being unseated next week.
- But perhaps the biggest change is in intellectual
fashion, which is still in the early stages of a big
change. Last week, Alan Greenspan, once the toast of
the economic world, admitted that he was mistaken
about the benign effects of financial deregulation. Yet
for years the former Federal Reserve chairman has
been warning of the unsavoury impact the
combination of widening income inequality and
income stagnation could have on a democratic society.
- Mr Bernstein, who has been focusing on income
stagnation for more than 20 years, says that alarm
about the problem has finally gone mainstream. "I
remember giving a presentation to Bob Rubin in the
early 1990s and he was concerned about it but
nothing more," he says. "Now he pays very, very close
attention to the problem. It can no longer be ignored."
The Financial Times Limited 2008, London
|Utah and Regional Median Wages - Stuck at the bottom!
Regional Median Wages by State 2000 &
2007||Average Annual %
|New Mexico ||13.88||
Sources: Joint Economic Committee
analysis of the Bureau of Labor Statistics Local Area
Unemployment Statistics (LAUS) program data and
Center for Economic and Policy Research analysis of
the Bureau of Labor Statistics Current Population
Survey Outgoing Rotation Group Files
- World Business Confidence
- Business sentiment stabilized last week near the
record low set the week before. Negative responses
to the nine questions posed in the survey measurably
outnumber the positive ones. Sentiment is
extraordinarily negative in North America and Europe
and measurably weaker in Asia and South America.
Hiring intentions fell again to another new low,
consistent with monthly job losses in the U.S. of well
over 150,000. Assessments regarding the economy
more broadly and the outlook six months hence
remain bleak. The financial panic that began in early
September has been a body blow to global business
confidence, and thus the global economy, which
according to the survey is now in recession.
- The Conference Board Consumer
- The Conference Board index of consumer
confidence tumbled in October to 38 from
September's 61.4 (upwardly revised from 59.8). The
expectations component of the index fell the most,
dropping to 35.5 from 61.5. The present situation fell
to 41.9 from 61.1. Assessments of labor market
conditions fell sharply, especially the expectations for
future jobs. This puts the index at its lowest level on
record back to 1969, by more than 5 points.
- ABC News/Washington Post Consumer
- Confidence edged higher this week, despite
financial market and economic turmoil. According to
the ABC News/Washington Post consumer
confidence index, sentiment gained 1 point to -49 for
the week ended October 26. Despite the slight easing
in consumer sentiment, the index remains at an
extremely weak level.
- Real GDP declined 0.3% in the third quarter at an
annualized rate, slightly better than the consensus
expectation for a 0.5% drop. This was down from
growth of 2.8% in the second quarter, unchanged from
last month. Over the past year, real GDP has
increased 0.8%. Consumer spending, business
investment, and investment in housing all fell from the
second quarter to the third. Inventories, trade and
government were all positives for growth. Final sales
of gross domestic product, a measure of demand for
U.S. goods and services, fell 0.8%. These data are
another indication that the U.S. economy is in
- FOMC Monetary Policy
- The Federal Open Market Committee lowered the
fed funds target rate from 1.5% to 1%. This action
follows an emergency 50-basis point cut in the target
rate on October 8. The committee's statement said
that economic activity has "slowed markedly" and cited
weakness in consumer spending, business
investment and exports. It also noted tight credit. The
statement said that "downside risks to growth
remain," an indication that more rate cuts could follow.
The target rate was last at 1% in June 2004.
- Durable Goods (Advance)
- New orders for manufactured durable goods rose
in September by 0.8%. This followed on the back of a
5.5% decline in August. The rise in orders was due to
a nearly 30% increase in orders for nondefense
aircraft. Orders excluding transportation were down
1.1% over the month and core capital goods orders
fell 1.4%. Core goods shipments bounced back from
August's decline, increasing 2% over the month.
- Jobless Claims
- Initial claims for unemployment insurance
remained at 479,000 for the week ending October 25.
This was in line with expectations. The latest figures
likely have little to no relation to hurricanes Ike and
Gustav, but remain on the high end of what has been
seen this year. This indicates that the labor market is
- New-Home Sales (C25)
- September new-home sales offer a glimmer of
hope for housing, coming 2.7% above the August
figure. At 464,000, however, the pace of sales
remained dismally low. Months of supply of homes
also fell, although it continued to take longer to sell a
new home. The median sales price declined by 9%.
Notwithstanding September's improvement, sales are
likely to weaken again.
- OFHEO Purchase-Only House Price
- The monthly OFHEO purchase-only house price
index fell by 0.6% from July to August and is now 5.9%
below its August 2007 value. Since the house price
index peaked in April 2007, the index has fallen by
6.5%. Prices declined for all census divisions except
New England, which posted a slight monthly increase.
The rate of decrease was slightly lower than in July,
but there is still no indication that house prices have
reached bottom yet for the U.S. as a whole.
- Existing-Home Sales
- Home sales surprised on the upside in
September. The National Association of Realtors
reported a 5.5% m/m increase in sales of existing
homes. At 5.18 million annualized units, sales are
running at their fastest pace since August 2007 and
are up year over year for the first time in three years.
Moreover, the decline in house prices, while still a
substantial 9% y/y, is slightly better than last month's
decline. The inventory situation is also improving, with
months of supply slipping just below 10 for the first
time since January. Before celebrating the end of the
housing downturn, however, it is important to note that
the improvement in sales comes on the back of a
surge in foreclosure sales.
- S&P/Case-Shiller Monthly Home Price
- Both the 10-city and 20-city composite S&P/Case-
Shiller house price indices posted their greatest year-
ago rates of decline on record in August. The 10-
metro house price index decreased 17.7% from a year
ago. The 20-metro index decreased 16.6%. On a
month-ago basis, rates of decline were largely
unchanged between July and August. In August, the
10-city composite fell by 1.1% and the 20-city
composite fell by 1.0%
- MBA Mortgage Applications Survey
- In the week ending October 24, the MBA market
index reversed its losses of the previous week and
rose to 476.7. The market composite jumped 16.8%,
pushed by increases in both the refinance and
purchase indexes. The refinance index rose to
1,489.4, a 28.5% increase. The purchase index
increased 8.5% to 303.1.
- Chain Store Sales
- Chain store sales rose 0.5% in the week ending
October 25 as declining gasoline prices and cool
weather supported store traffic, according to the ICSC.
Year-over-year growth rose to 1.3%, very weak but the
best performance in three weeks.
- Oil and Gas Inventories
- Crude oil inventories rose by 0.5 million barrels for
the week ending October 24, according to the Energy
Information Administration, falling short of
expectations of a 1.6 million barrel build. Gasoline
inventories fell by 1.5 million barrels, contradicting
expectations of a 1.5 million barrel build. Distillate
supplies rose by 2.3 million barrels, surpassing
expectations of a 1.1 million barrel build. Refinery
operating capacity improved to 85.3% from 84.8%.
Total domestic petroleum demand was relatively
unchanged from the prior week. This report should
lend modest upward support to oil prices.
- Natural Gas Storage Report
- Working gas in underground storage increased by
46 billion cubic feet during the week ending October
24, above consensus expectations of a 41 bcf build.
|THIS WEEKS LEADS:
- Dress Barn
- The Dress Barn, Inc. trades as dress barn at 830
- The specialty apparel
stores, offering quality career and casual apparel,
occupy spaces of 7,000 sq.ft. to 8,000 sq.ft. in power,
outlet, regional and community centers, in addition to
metro downtown areas.
- Growth opportunities are
sought throughout the existing market during the
coming 18 months.
- Preferred cotenants include
grocery stores, discount department stores, fashion
anchored and soft goods retailers.
demographics include a population of 120,000 within
a five-mile radius earning a minimum median
household income of $45,000.
- The company
prefers to locate in inline spaces between two major
anchors and in centers with a minimum GLA of
- For more information, contact
- Elise Jaffe,
- The Dress Barn, Inc.,
- 30 Dunnigan Drive,
- Suffern, NY 10901;
- Web site:
- Fatburger Corp. trades as Fatburger at 90
locations throughout AZ, CA, CO, FL, GA, LA, MI, NE,
NJ, NV, NY, OH, PA, TX and WA.
- The restaurants
occupy spaces of 1,800 sq.ft. to 2,200 sq.ft. in
- Growth opportunities are
sought nationwide during the coming 18 months.
- For more information, contact
- David Dale-
- Fatburger Corp.,
- 301 Arizona Avenue,
- Santa Monica, CA 90401;
- Web site:
- Great Wraps
- Great Wraps operates 87 locations nationwide.
- The sandwich shops occupy spaces of 1,500 sq.ft.
to 1,800 sq.ft. in malls and lifestyle, power and strip
centers, in addition to urban/downtown areas.
- Growth opportunities are sought throughout select
markets nationwide during the coming 18 months.
- Typical leases run 10 years. A vanilla shell and
specific improvements are required.
demographics include a population of 10,000 within
one mile earning $35,000 as the average household
- For more information, contact
- Great Wraps,
- 4 Executive Park East,
- Atlanta, GA 30329;
- Web site:
|BONNEVILLE RESEARCH - Working with clients to make things happen!
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|Note from Bob Springmeyer:
As some of you may know I am the Democratic
Candidate for Utah Governor.
I have always considered myself a "pro-business"
moderate in the great tradition of Governors Rampton
I have tried to run an issues based, ethical
campaign that reflected my business and economic
I have tried to not use the Monday Report as
a campaign tool, but if you are interested in my
campaign please click on the link below.
The good education, good jobs, good health and
good government candidate for Utah Governor
Election Date: November 4th, 2008
November 4th, 2008