3/2/2011 2:25 PM ET|
It's a recovery only if you're rich
It's no wonder: Income growth has stagnated, especially for the poor and middle class. For those in the lower 60% of the country in terms of household income, in inflation-adjusted terms, their earnings haven't gone anywhere since the late 1980s. In 1989, the average household income for these folks was $29,685, compared with $30,114 now.
That has translated into rising income inequality as the top 5% of the population captures an ever-increasing share of the economy. Current levels of inequality haven't been seen since the lead-up to the Great Depression back in the 1920s.
But there is reason to believe things might get better soon.
The good news is some of the structural issues that have weighed on the working class are beginning to lift.
Higher fuel prices and geopolitical instability are increasing the costs of outsourcing and shipping from factories far afield. Surging inflation and wages in places like China, where the once seemingly inexhaustible pool of workers has started to diminish, are pushing up production costs. There are new reports of Chinese factories grinding to a halt for want of laborers. Even white-collar managers and engineers are being forced out of their comfy office chairs to spend time on the assembly lines. The lack of manpower is becoming acute in the Middle Kingdom.
These factors are combining to push up the price of Chinese exports -- and ontributing to inflation here in the United States. According to Société Générale economist Aneta Markowska, within the next few months the cost of trinkets made in China will start rising at a 2%-plus annual rate, versus the current core CPI rate of 0.9%. After 15 years of exporting "disinflation" to the West via shiploads of cheap manufactured goods, China is set to start spreading higher prices.
The longer this continues, the less competitive goods from China will become compared with U.S.-made products. That's a good thing from the perspective of the average American worker.
Markowska notes that she's seen "numerous reports in recent weeks about U.S. importers facing significant cost hikes and scrambling to find lower-cost production centers." Alternative exporters, such as Vietnam, Thailand and India, are being looked at. But it will take months, if not years, for companies to relocate production. And given the turmoil roiling North Africa and the Middle East, political risk is suddenly a very real concern again.
Such pressures make hiring workers and building things in America more attractive. Also contributing is a weakening dollar, which now threatens to fall through four-year trend line support, as shown in the chart above. While a weaker greenback always damages national pride and contributes to inflation by pushing up the prices of oil and imported goods, it also boosts our competitiveness -- turning the tide so the benefits of export-led growth accrue to United States instead of places like China and Germany.
Indeed, Intel (INTC, news) recently announced it will spend $5 billion to build a new semiconductor facility in Arizona that will create thousands of new jobs. And in recent months, measures of manufacturing and service-sector activity have blasted higher to new recovery highs. The ISM Manufacturing Index's employment sub-index pushed to its best levels since the early 1970s. Purchasing managers in the Chicago area indicated the fastest pace of activity since the late 1980s as new orders pour in.
But make no mistake: We're a long way from out of the woods.
The consumer squeeze
We're now in a race against time, left hoping that job creation will ramp up before inflationary pressures can damage consumer and business sentiment and cause a growth scare like the one seen during last summer's eurozone debt crisis. And over the near term, consumers waiting for the new jobs and higher wages will be squeezed by rising commodity prices.
And for U.S. workers, the healing will be slow.
Markowska, of Société Générale, is looking for the unemployment rate to fall very slowly, ending 2011 at 8.7% and 2012 at 8.4%. It's at 9% now. That will help keep wage growth low for most Americans. UBS economist Thomas Doerflinger is looking for wage growth of just 2.7% this year and 1.5% in 2012 as the current payroll-tax cut expires.
The investing angles
As is often the case, investors can make moves to play into this trend. The team at UBS recommends avoiding consumer staples stocks, because they are vulnerable to higher commodity and energy prices at a time when many consumers are still cautious about spending. On April 1, Whirlpool (WHR, news) will raise the price of its washing machines by up to 10% as it tries to pass on higher steel costs. Kimberly-Clark (KMB, news) is just one of many toilet paper makers that have narrowed the size of their rolls in an effort to protect profits.
Another strategy is to embrace wage inequality -- because it isn't going away -- by focusing on the low end with retailers like Family Dollar Stores (FDO, news), and on the high end with retailers like Nordstrom (JWN, news).
At the time of publication, Anthony Mirhaydari did not own or control shares in any company mentioned in this column.
Be sure to check out Anthony's new money management service, Mirhaydari Capital Management, and his investment newsletter, the Edge. A free, two-week trial subscription to the newsletter has been extended to MSN Money readers. Click here to sign up. Mirhaydari can be contacted at firstname.lastname@example.org and followed on Twitter at @EdgeLetter. You can view his current stock picks here. Feel free to comment below.
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This article is the closest that I have seen to getting to the truth. The author misses the fact that these other countries discourage unions and any real environmental regulations including that workers get very little to no benefits which hurts his diminishing supply argument
And coincidentally, those countries have much smaller economies. When you look at the countries who's economies are growing, they all have one thing in common: Raising wages, and a strong/growing middle class.
The recovery was always a sham for most Americans. The bottom 50 percent of income earners in the United States own less than one half of one percent of all the stocks on the stock market. The top 10 percent of income earners own over 90 percent of all the stocks. Consequently, the only people really enjoying this recovery are the top ten percent of income earners. The rest of the citizens of the United States haven't benefited at all.
However the recovery of the stock market is a falsehood even for the wealthy who are invested in it. The instability now in the Middle East and it's affects on oil production create a real possibility of a huge spike in oil prices and a huge increase in inflation that even Ben Bernanke can't lie and pretend doesn't exist. This will lead to a higher interest rates, a huge devaluation of the dollar ( and possibly a loss of it's reserve currency status), and another possible derivative market collapse that will destroy the 5 major banks ( JPMorgan, Citbank, Bank of America, HSBC, and Goldman Sacs). If this perfect storm of financial disaster happens the rich can kiss their stock market gains goodbye. In fact if their assets are in dollars when this mother of all financial meltdowns occurs they will join the ranks of the poor because they will be wiped out due to the dollars devaluation.
Consequently, the next 12 months in the Middle East will be critical in determining the fate of this "recovery". I'm not optimistic about the outcome but maybe things will stabilize. I hope it does but I'm preparing for the worst.
FrEddddd gets it Colorado, He says he is poor always has been, but he is happy. He states he has a new car and an old boat, those were things he WANTED and chose to get for himself. Unlike you though, he doesn't expect someone else to pay for those things for him. So again it boils down to choices, everybody has to decide for themselves what is most important to them and pick accordingly whilst staying within their means.
You are right to question whether our government treats all people equally, but wholly wrong to blame "liberals" for treating some people "more equal" than others.
The truth is that in government, like in almost all aspects of public life, money talks and almost all of the inequalities in the way people are governed will benefit those who have the resources to influence political decisions.
Look at any aspect of government services:
For Public education: Schools are far better in wealthy neighborhoods and areas than in poor ones, the same is true for road quality, police coverage, fire department coverage, general cleanliness and upkeep of public areas, etc.
For criminal behavior, the wealthy are far more likely to get off with a warning or community service for crimes that could lead to imprisonment in poorer areas
For zoning laws, power rates, building contracts, water rates, military contracts, research funding... really pretty much any government function, those with money to influence the decision will get the best deal
It simply makes sense... Politicians in general are self-interested and the people most likely to benefit them directly in the most ways possible are those who have money, so almost all government decisions are biased towards those that have money. It is true in both the Republican and Democratic parties. The democrats just tend to espouse being "for the people" more. In the end, most decisions and laws tend to end up biased toward the wealthy no matter the politicians espoused.
But to say that because we have a Democratic administration we are somehow biased towards the poor is just silly. That would require a majority of Congress to be more motivated by their ideals than by their best interest and that is never going to happen.
I as a liberal never ask government for anything but fairness--this is only right for everyone to be treated fair---when Wall street raids the pension funds no one goes to jail ???? 401k's raided no one goes to jail ???? King Ronnie lets the wealthy slide on social security above the 98k line----This is nothing but shameless trash period and we should expect at least decent acts from any human beings---wanting a better society for all--my philosophy..
Welfare queen Koch brothers want no minimum wage, no corporate taxes and no oversight---hence funding the tea baggers--they want to trash this fine country--some are stupid enough to fall for it too--amazing........taking workers rights away--yea that is American--NOT.
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