Money Squeeze
(Originally posted at www.marketshadows.com; this information and a prominent link to www.marketshadows.com may not be removed. This post may only be reposted with permission.)
By Paul Price of Market Shadows
Money can’t buy happiness, but it can rent it.
Post-WWII, Americans got used to a rising standard of living. There have only been a dozen years since 1950 in which growth in personal disposable income was less than 5%. Eight of those twelve years have been since 2001.
Last year’s 3.3% rise in real DPI was the smallest increase since 2009’s Great Recession. The relatively pitiful 2012 number was inflated. Late in the year companies rushed to accelerate payment of 2013 dividends and year-end bonuses ahead of what threatened to be much higher federal income tax rates. Many firms also declared large special payouts.
Without 2012's front-loading, last year's DPI would have been even more disappointing.
Excluding 2009 as an outlier, last year’s number, even with huge non-recurring items, was the lowest year-over-year change during most of our lifetimes. Working stiffs who didn’t own dividend paying stocks or qualify for bonus payments felt more pain than the low 3.3% final figure suggests.
Not surprisingly, 2013 income has been worse than 2012's. Money brought forward to December 2012 cannot be paid again. The trailing 12-month increase in DPI through May 2013 was 1.45% nominally (unadjusted for inflation) setting up the current year to be a major setback. Real DPI (not adjusted for inflation) barely budged at + 0.43% over the past 12-months.
Those who measure their cost of living by counting the outlay for a basket of identical goods and services versus one year earlier know that our government’s CPI (Consumer Price Index) numbers far understate true price inflation.
Typical citizens have been getting squeezed in multiple ways. Higher income taxes, increasing property taxes and ever-rising sales tax rates result in less disposable income. More expensive price tags on almost everything we need (utilities, gasoline, food, healthcare etc.) reduce purchasing power of the money we have left after taxes.
The true standard of living has been going down for most people. Many have resorted to tapping savings or borrowing from their 401K retirement accounts.
No wonder most people are having trouble seeing America’s ‘economic recovery’.
Dr. Paul Price, Market Shadows, www.marketshadows.com, July 30, 2013. Our content from original writers and guest authors may not be reposted without obtaining permission.
