On Thursday, President Obama gave a speech at Northwestern University’s Kellogg School of Management on the economy. The issue is critical going into the mid-term elections as virtually every poll shows this is a top concern of voters.
The question of economic recovery is interesting in the context of where that recovery has occurred. As I discussed before for 90% of Americans, there has been no economic recovery. While the ongoing interventions by the Federal Reserve have inflated asset prices, the only real accomplishment has been a widening of the wealth gap between the top 10% of individuals that have dollars invested in the financial markets and everyone else.
Another problem for the President is that he is promoting his success of economic recovery to a group of individuals who are currently plagued with a poor slate of economic statistics. The unemployment rate for 18-29 year-olds is nearly 12%. Over 30% are still living with parents more than two years after graduation. Only 43.6% of young adults currently hold a full-time job. 53% are either jobless or underemployed relative to the education according to the BLS.
These stats make promoting an “economic success” story rather difficult. However, let’s review Obama’s economic scorecard in terms of the things that truly matter to the average American.
There is only one chart of employment that truly matters: the number of full-time employees relative to the working age population. Full-time employment is what ultimately drives economic growth, pays wages that will support household formation and fuels higher levels of government revenue from taxes. If the economy were truly beginning to recover, we should be witnessing an increasing number of full-time employees. Unfortunately, that has not been the case as this measure, as shown by the chart below, is only slightly off the lows witnessed during the financial crisis.
Wages & Salaries
Given that nearly 70% of economic growth is driven by personal consumption expenditures, the sluggishness of economic growth since the financial crisis can be directly attributed to a fall in personal incomes. According to a recent Federal Reserve survey, median household before-tax incomes have fallen from near $52,000 annually to roughly $47,000 currently.
The decline in income comes at a time when costs of living have continued to rise. While it is often stated that the “Labor Force Participation Rate” has fallen in recent years due to the a slate of baby-boomers retiring, there are currently more individuals over the age of 65 in the workforce than at any other time in history. For many of those individuals, it is not a question of “wanting” to work, but rather “having” to work.
Another mainstream media theme has been that the surging stock market, driven by the Federal Reserve’s monetary interventions, has provided a boost to the overall economy. However, the bulk of the population either does not, or only marginally, participates in the financial markets. The boost from inflated asset prices driven by Federal Reserve interventions has remained concentrated in the upper 10% of the population. The Federal Reserve study breaks the data down in several ways, but the story remains the same. The median value of financial assets for families has fallen sharply since the turn of the century.
Except for those in the top 10 percent of the population.
The U.S. economy was built on opportunity. However, since 2007, opportunity to “own” a business has plunged to the lowest level since 1989. As discussed, the Bureau Of Labor Statistics adjusts to the employment report upward to account for “new business” start-ups. Since 2009, the “birth/death” adjustment has added 3.5 million jobs to the employment roll. The problem, however, is that the number of families that owned business equity has plummeted during that same period.
When it comes to the “average” American family, the need for “economic stability” is critical to the support of spending and consumption habits. As shown in a recent WSJ poll, the majority of American’s believe that the economy is headed in the wrong direction.
While President may tout “economic success” from various “statistical measures,” the structural transformation that has occurred in recent years has likely permanently changed the financial underpinnings of the economy as a whole. With the average American in financially worse condition today than when President Obama took office, it will be difficult to suggest that he has been successful in “fixing” the economy.
Has there been an economic recovery under President Obama? Sure, but it depends on who you ask.