Stocks struggled following disappointing news and enter the final hour in the red erasing yesterday’s gains. Consumer Credit fell again in June, dropping 1.3 billion or .7% annualized. Productivity declined .9% in the 2nd quarter, snapping a string of 5 consecutive substantial gains. Hourly compensation fell .7% while unit labor costs increased .2%.
What I really wanted to talk about today is the August BEA, MSA Income Report for 2009 because economic recovery is ultimately about jobs and income. While the unemployment rate can be debated, officially it is 9.5% using U-3, U-6 which includes involuntary part-time, those who have given up looking and other marginally attached groups and the unemployment figure jumps to 16.5%, income is a little more cut and dried. Of the 366 MSA covered by the 2009 report income declined in 233, increased in 134 and was unchanged in 9. The average nominal decline in income last year was 1.4% on a per capita basis. Inflation using the PCE was figured at .2% during last year. Which means that the real income decline in 2009 was 1.6% nationally based on this report.
Of the 134 MSA that saw an increase in income, 77 of those can attribute the increase to transfer payments, which means unemployment, food stamps and other social benefit programs. An additional 57 saw improvements to income come from increased government and military spending. This leaves just 5 MSA that can attribute income growth to improvements in the private sector last year.
On an aggregate basis nominal income declined .5% last year or .7% on a real basis, which includes inflation. Of the top ten MSA that saw an increase last year 7 did it with military spending, 2 with private activity and one was undetermined
On a per capita basis Midland TX, saw the greatest decline as nominal income fell 8.8% last year, add inflation and real income fell 9% during 2009. At the other end of the scale Jacksonville, NC saw average income jump 11.9% in 2009 primarily due to military spending or 11.7% including inflation.
Out here in California average per capita nominal income fell 1.8% in 2009 or 2% including inflation for the 26 California MSA included in the report. The Top 5 income declines include San Jose –5.3%; Santa Rosa –4.8%, San Francisco –4.6%; Santa Cruz –3.8% and LA –3.8%. Salinas saw incomes fall 1.2% while San Luis Obispo dropped 1.8%. Only 4 MSA saw per capita income increase last year, Yuba City +1.9%; El Centro +1.8%; Vallejo +.6% and Chico +.4%.
There are a number of takeaways from this report, the most significant of which is that falling wages are a hallmark of deflation along with reduced demand for and use of credit, and of course tightening lending standards. All of which clearly shows up in the data yet most pundits, economists and policy wonks don’t think deflation is an issue nor is it often mentioned let alone discussed. God forbid we label this recession for what it really is, credit bust induced and not your garden-variety business cycle induced variety.
Additionally achieving price stability in an environment featuring falling wages is nigh on impossible, and you can forget about price increases. Falling income materially impacts the price to income ratio for real estate and related affordability metrics and not in a positive manner. Rents will also be negatively affected which of course impacts the cash flow projections of investment real estate.
While the Case Schiller Home Price data shows an increase of 21% from the nadir set in March of 2009 for the San Francisco MSA, as I mentioned yesterday along with the caveat about seasonal factors. Given the income data for 2009 and that figure becomes even more suspect. While one may be able to argue its validity, its durability is another matter altogether.
Hi and welcome to The Profit Motive, I’m your host Caleb Lawrence. Once upon a time in America the media acted as the watchdog of the corporations and the state. In the modern era it’s all about ratings and profits, opinion has been substituted for news and frequently is presented as fact. 
