Another Unraveling: Sinking Real Household Income

A core measures of U.S. economic performance is Meidan Real Household Income. Kiplinger reports via DOC that this indicator peaked in 2000 at about $46,000. In 2003, it had fallen close to 5%. Since, it has been essentially flat. As housing cools, asset values increases, an important factor driving consumtion will slow. Furthermore, as personal debt rises as result of Americans pursuing the level of consumption to which they have become accustomed, they will find this level increasingly more difficult to sustain. With the cost of personal debt rising with rising interest rates, the inevitable slower increases in consumption will pull the GDP growth rate from the high 4% range to below 3%. As a perecnt of gross domestic income, profits have risen about 4% since 2001 while labor share has declined. We believe (as will be a forthcoming topic) that the rising proportion of low wage jobs created is a major factor (of several) in a decline in real wages, which, in turn, has contribued to the drop in labor's share. Over the same period, rising costs of utilities, gasoline, and health care premiums are squeezing household, not to mention the melt down in pensions and health care access.

Two related political questions for the 2006 elections are 1) whether U.S. voters (unlike 2004) will connect the dots, and, if they do will they put culture wars diversions (sex, race, etc) before economic security and 2) will the Demoractic Party figure out how to refocus the voters on the economic issues.