Average Incomes Fall Again in 04

[Nbadan]

http://www.bullnotbull.com/gallery/images/g-2004-09-01-inflation.gif


WASHINGTON - The average income of American families, after adjusting for inflation, declined by 2.3 percent in 2004 compared to 2001 while their net worth rose but at a slower pace.

The Federal Reserve reported Thursday that the drop in inflation-adjusted incomes left the average family income at $70,700 in 2004. The median, or point where half the families earned more and half less, did rise slightly in 2004 after adjusting for inflation to $43,200, up 1.6 percent from the 2001 level.

The median, or midpoint for net worth rose by 1.5 percent to $93,100 from 2001 to 2004. That growth was far below the 10.3 percent gain in median net worth from 1998 to 2001, a period when the stock market reached record highs before starting to decline in early 2000.

The Fed's results were published in the 2004 Survey of Consumer Finances, a document which provides a comprehensive view of how Americans are faring on such pocketbook issues as incomes and net worth.

Yahoo News (http://news.yahoo.com/s/ap/20060223/ap_on_bi_ge/family_finances)

The figures don't lie. Heavy debt and no, or slow growth in real wages are eatting up any rise in net worth.

[Peter]

Sure, that period includes a rather nasty bear market. Median income is up, which is probably the better measure to use unless you are worried about the upper crust.

[Nbadan]

Median income is up slightly, but median wages which make up the largest part of family income is down 6.2%


A decline in wages also helped account for the slow growth in net worth.

While the median income rose 1.6 percent, to $43,200, after adjusting for inflation, median wages fell 6.2 percent. Wages make up the largest part of family income.

Despite lower interest rates between 2001 and 2004, families spent more of their incomes paying off their debt.

The growth in income was the slowest since the Fed's 1992 survey, when median income actually fell.6.7 percent, to $35,100, between 1989 and 1992.

CNN MONEY (http://money.cnn.com/2006/02/23/pf/consumer_fedsurvey/index.htm?cnn=yes)

Median income is skewed by the rich getting richer effect, not an increase in real wages by working Americans.

[xrayzebra]

Yeah, but the rich got richer.......... :drunk

[SA210]

Yeah, but the rich got richer.......... :drunk
And the old got older.

[xrayzebra]

^^The alternative isn't so great, is it?

[101A]

Median income is up slightly, but median wages which make up the largest part of family income is down 6.2%



CNN MONEY (http://money.cnn.com/2006/02/23/pf/consumer_fedsurvey/index.htm?cnn=yes)

Median income is skewed by the rich getting richer effect, not an increase in real wages by working Americans.


You consider families that make $70K rich?

Otherwise, mathematically, your premise is impossible.

[101A]

Also, these are gross income figures. Because of the accross the board tax cuts, ANY person who paid income taxes in '04 saw a rise in their net income.

[Peter]

Median income is up slightly, but median wages which make up the largest part of family income is down 6.2%



CNN MONEY (http://money.cnn.com/2006/02/23/pf/consumer_fedsurvey/index.htm?cnn=yes)

Median income is skewed by the rich getting richer effect, not an increase in real wages by working Americans.


The median is up while the average is down. That doesn't indicate that the "rich" are doing better relatively, rather the reverse.

[Nbadan]

Also, these are gross income figures. Because of the accross the board tax cuts, ANY person who paid income taxes in '04 saw a rise in their net income.

You mean tax deferments, right? Let's come correct.

[Nbadan]

The median is up while the average is down. That doesn't indicate that the "rich" are doing better relatively, rather the reverse.

Or the income gap has widened.

[Peter]

Or the income gap has widened.

Not when the median is up. You'd need that to have declined more than the mean for your assertion.

[Nbadan]

Not when the median is up. You'd need that to have declined more than the mean for your assertion.

I like to put it this way, the income gap has widened, but were all swimming in the same ecomomic cess-pool. The Poor have more debt, the rich have more debt.

[Peter]

I like to put it this way, the income gap has widened, but were all swimming in the same ecomomic cess-pool. The Poor have more debt, the rich have more debt.


The median has increased. That means half the population are below a higher threshold. That's not a bad thing. The average has declined in real terms but the average is above the median.

[xrayzebra]

:drunk pass some of those funds my way :drunk

reaganomics, right!

You will get yours after you earn it. Like anyone who has worked, earned
and saved. It takes time for most folks.

And Dan, not all poor and rich are deeper in debt, just some. You get the
facts straight....okay

[xrayzebra]

those who are born rich, stay rich.

Really? There are many who would argue that. Me for one. But it
would serve no purpose. Being rich is not a crime. (unless you made it
in crime...LOL). I am far from rich, but I don't have to worry too much
about money, not because I have that much, it just that I don't really
need that much. I am satisfied with my life, material wise. I drive a
86 pickup, runs great, no bruises or scrapes and gets me where I want
to go. Have a roof over my head and eat well. Have enough toddies to
keep me happy. Heck, no one with loads of money has more. Just a little
prettier settings.

Anyhow, you are young, full of piss and vinegar and just getting started.
I would love to be around in about 50 years, not possible, and talk to you then
about wealth. Believe me you will change you tune. You will do well,
I promise, you have a good education, provided you really did attend
college to learn and not kill time and you are going to one of the top
notch universities in the US of A. Enjoy life, believe me when people
tell you time slips by, it does.

[SA210]

Really? There are many who would argue that. Me for one. But it
would serve no purpose. Being rich is not a crime. (unless you made it
in crime...LOL). I am far from rich, but I don't have to worry too much
about money, not because I have that much, it just that I don't really
need that much. I am satisfied with my life, material wise. I drive a
86 pickup, runs great, no bruises or scrapes and gets me where I want
to go. Have a roof over my head and eat well. Have enough toddies to
keep me happy. Heck, no one with loads of money has more. Just a little
prettier settings.

Anyhow, you are young, full of piss and vinegar and just getting started.
I would love to be around in about 50 years, not possible, and talk to you then
about wealth. Believe me you will change you tune. You will do well,
I promise, you have a good education, provided you really did attend
college to learn and not kill time and you are going to one of the top
notch universities in the US of A. Enjoy life, believe me when people
tell you time slips by, it does.
Is this a suicide note?

[SpursWoman]

I like to put it this way, the income gap has widened, but were all swimming in the same ecomomic cess-pool. The Poor have more debt, the rich have more debt.



Who is responsible for all of these people having more debt?




Oh, and mine went considerably up. Because of the house I bought. :spin

[xrayzebra]

^^not really. But I do know that anyone in this country who want to succeed, can
and will. I don't by that mean become rich. I actually admire young people who do go
to college. I don't like it when you say some of the things that you have about being
in debt and blaming the government. But luckily you can say things like that.

I was lucky in many ways. I am a native Texan. I had a good family on both sides,
Mother and Father and both my grandparents had small farms. I loved my childhood in many
ways. I had things that most of those on this board will never have and it really
is a shame. I remember Sunday afternoons when we would go to my Granddads
and cut watermelon and cantaloupes and eat to our hearts content. I remember
sitting and listening to the men talk (and smoke) and tell stories, a lost art. I learned
a lot from those times. I learned that money was not the only thing in life. I can
remember the times when my Grandfather didn't have two cents to rub together
but he wasn't poor. I thought patches on men's pants were a normal thing and
nothing to be ashamed of. But we never went hungry, my Father always had a
job and my Mother always kept a great house and was a great cook. We didn't have
air conditioning, but had a sleeping porch or slept outside, with no fear. Dogs
ran loose, cats roamed and everyone knew everyone's else business and no one
really cared. You left the house open and windows up in the summer, if a thunder-
storm came up you neighbor came over and shut the place up. If someone dropped
by at mealtime, they were welcome to come in a eat with you. Blacks and whites
were good friends (that might surprise some). People respected others and their
word was good as gold. People read and were literate, does that surprise anyone.
And yes, people were very moral and most church going folks. Many deals were
sealed with a handshake. Hogs were killed at first frost and it was a family thing
along with neighbors all helping out. Yeah, I know it all sounds so corny to some
now. They say air conditioning was what made Texas great. BS, wished they
had never invented it. The people of Texas is what made Texas great. They were
hard working, stuck in the mud types who just loved family and their country. Yep,
and they did their share of griping.

[RandomGuy]

The median has increased. That means half the population are below a higher threshold. That's not a bad thing. The average has declined in real terms but the average is above the median.


Once again you missed the a vital point

Let me restate it in case you missed it.

after adjusting for inflation, median wages fell 6.2 percent.

just in case you weren't wearing your reading glasses.

The real bottom line is that living standards are falling for more than half the population.

What is going to happen to that median income when we have to raise taxes to pay for the interest on all the new debt the US govt was/is issuing to pay for those massive budget shortfalls?

[RandomGuy]

Who is responsible for all of these people having more debt?




Oh, and mine went considerably up. Because of the house I bought. :spin

Heh, your liabilities went up, but so did your asset column. House purchases generally have a mostly neutral effect on net worth (slightly negative at first due to the closing costs, but rising into positive area as equity is built up after the first few years)

But to the point of your question:

People themselves. Americans have forgotten how to save money, it seems. I really wish we would stop living beyond our means.

[Nbadan]

Heh, your liabilities went up, but so did your asset column. House purchases generally have a mostly neutral effect on net worth (slightly negative at first due to the closing costs, but rising into positive area as equity is built up after the first few years)

I would bet that home appreciation makes up much of people 'asset gains' on their individual balance sheets. Now let's say that the cyclical home market start depreciating, as has happened throughout history. Now people are stuck with high debt, and a home that is worth much less than they can get if they sold it. This is the real danger to the economy.

All it would take is a rapid rise in interest rates of less than 5% and all these adjustable rate mortages, home loans at 125% of value, and floating interest rate revolving credit would sink millions of Americans. This, more than any other reason is why the WH cannot let Iran undermine the strength of the dollar with it's new oil boarse.

[xrayzebra]

^^Dan, some people buy a home for just that purpose: their home. One thing
most forget, look at housing today (size wise) versus homes from just the
50-60's. What a difference. People say homes have gone up, and they have,
but one thing they don't realize so has the size and quality. One of the most
expensive items a person purchases and gets ripped off with is a car. Quality
may have gone up a bit, but size wise, they are tin cans. Which you put on
not get into. The point I am trying to make about housing is that some people
more than you would imagine buy a home never intending to move from that
location. It is their home where they want to raise their family.

[RandomGuy]

THOUGHT OF THE DAY:

You own a home in a distant suburb of any major with few nearby jobs.

Gas gets increasingly expensive over the course of say 10 years, tripling in price (12% rise per annum).

Your transit costs to get to your far away job in the city center have increased dramatically, creating a large incentive to live closer to your job.

The same holds for everybody else.

Question #1:

What happens to the aggregate (overall) demand for those suburban homes?

Question #2:

Based on your answer to #1, would this lead to an increase or decrease in the price of those suburban home, all other things held equal?

Question #3:

Since interest rates are intrinsically tied to inflation rates, if the cost of energy is rising at roughly 12% as in question #1, does that imply that interest rates will be rising as well?

Question #4:

If the demand for houses is inversely related to interest rates, do higher interest rates imply a greater or lesser demand for homes?

Answers in next post, in case you really need them.

[RandomGuy]

Q #1 Answer:

Overall demand for those home will decrease, all other things held equal.
__________________________
Q #2 Answer:

All other things held equal, the price point for homes would fall.
__________________________
Q #3 Answer

Given the premises, yes interest rates will be rising.
__________________________
Q #4 Answer

Again, given the premises of the question, overall demand for housing will fall.

A simple conclusion for this is that this combination of (very plausible) factors will "prick" the current housing bubble.

As Nbadan mentioned above, this will lead to a lot of unpleasant things for the large numbers of people who have maxxed out the equity loans on their houses.


I sincerely hope that those of you who read this and own houses will take heed to get your loans on a fixed interest rate basis if they are not, and to not take out more debt in the coming year or two based on equity that may not be there much longer.

I have no doubt that some of you will read this as "he hates Bush and is trying to say the economy is awful to make Bush look bad" and will ignore it simply based on that. This is the WRONG conclusion to draw.

You might not agree with me politically, but if I were to tell you not to drink Drano, I would hope you would have the good sense to believe that. The intention of this is similar.

I AM NOT trying to convince anybody with this that because the economy is not ducky Bush is bad.

I AM trying to convince y'all to be cautious when it comes to buying/financing a house and to pay down your debt over the next few years.

[SpursWoman]

People themselves. Americans have forgotten how to save money, it seems. I really wish we would stop living beyond our means.



I know that only people themselves are responsible for their increase in debt, that was my point to Dan.

[boutons_]

February 22, 2006


For Minorities, Signs of Trouble in Foreclosures

By VIKAS BAJAJ and RON NIXON

CLEVELAND * Catrina V. Roberts, a single mother of four, joined a new, growing class of minority homeowners when she moved from her subsidized apartment to a two-story house in 1999.

But Ms. Roberts fell behind on her payments and declared bankruptcy last year. Now, as she loses her modest home to foreclosure, Ms. Roberts may represent the vanguard of a worrying trend of retreat.

The housing boom of the last decade helped push minority home ownership rates above 50 percent for the first time in 2004 and the overall foreclosure rate below 1 percent. Social scientists laud these accomplishments because ownership can foster greater neighborhood stability and economic progress. President Bush cites rising minority ownership as a milestone achievement under his "ownership society" programs.

But hidden behind such success stories lies a disturbing trend: in the last several years, neighborhoods with large poor and minority populations in places like Cleveland, Chicago, Philadelphia and Atlanta have experienced a sharp rise in foreclosures, in some cases more than a doubling, according to an analysis of court filings and other housing data by The New York Times and academic researchers.

The black home ownership rate even dipped slightly last year, according to the Census Bureau.

The increase in foreclosures could be the first of a wave of financial distress for many minority homeowners, experts say, because they are twice as likely as whites to have taken out expensive subprime mortgages, most of which will jump to higher interest rates in the next two years, according to an analysis of data that lenders disclose under the federal Home Mortgage Disclosure Act.

Subprime loans, which are generally for low-income borrowers who do not qualify for standard mortgages, have interest rates that are, on average, three points higher than prime rates, about 6.2 percent now, and they carry higher fees and prepayment penalties that make it expensive to refinance.

Some housing experts worry that the minority foreclosure rate could worsen if the economy or the housing market, nationally or regionally, hits a rough patch as it has in industrial Midwestern states like Ohio.

"Anybody who is on the edge, those are factors that can tip them over into foreclosure," said William C. Apgar, a lecturer at Harvard who has studied foreclosure patterns in Atlanta, Chicago and Los Angeles. "That could happen even though foreclosure rates are down."

The example of Ms. Roberts is noteworthy because her loan from KeyBank, a longstanding Cleveland institution, carried a relatively low fixed interest rate of 7.4 percent on a principal of $65,000. She never had a credit card, much less a credit record, and put down only $2,000.

Over the years, Ms. Roberts's monthly expenses rose because of repairs to a dilapidated porch and the birth of two grandchildren, but the $880 a month she takes home after taxes from her job as a home health aide did not.

Ms. Roberts, 35, also receives $1,100 in Social Security benefits because two of her younger children have learning disabilities. "I know when you buy a house, eventually you have to put work into it," she said and sighed, "but I didn't know it would lead me here, because if I did I would have never bought it. So, I am at a point right now that I don't want to ever buy a house, ever again."

The Mortgage Bankers Association of America plays down the severity of foreclosures, noting that most new minority homeowners are doing well and that the Midwest is facing unique economic challenges. The trade group estimates that fewer than 1 percent of all loans were in foreclosure in the three months that ended last September, down from 1.5 percent in 2002. For subprime loans, the rate was 3.3 percent, down from 8 percent in 2002.

Trouble in Cuyahoga County

But broad national statistics can obscure hard local realities. In Cuyahoga County, which includes Cleveland, Ms. Roberts's hometown, court filings by lenders seeking to foreclose on delinquent borrowers totaled more than 11,000 in 2005, more than triple the number in 1995.

There were 17 auctions of foreclosed properties for every 100 regular single-family homes sold in the county in 2005, up from 10 in 2004 and 5 in 1995, according to data tabulated by Cleveland State University. (Not all homes that enter foreclosure are sold at auction; sometimes borrowers and lenders settle out of court or the property is sold on the open market.)

There is no way to know how many foreclosures of minority-owned homes have occurred in the Cleveland area, because county filings do not identify people by race. Experts say the closest proxy is the number of auctions of seized homes conducted by a sheriff as a ratio of conventional sales in areas with large minority populations.

In the eastern part of the county, which is 52 percent black and 7 percent Hispanic, the ratio of auctions to regular sales was 23 per 100 last year, up from 9 in 1995. In the west, which is 82 percent white, the ratio was 11 per 100, up from 2.5.

A similar pattern can be seen in Chicago, where foreclosure filings tripled, to 7,576, from 1993 to 2005. Neighborhoods where the population is more than 80 percent non-white account for 65 percent of all cases, up from 61 percent in 1993, according to data compiled by the National Training and Information Center, a housing advocacy and research group based in Chicago. The same trends have been documented in Atlanta and Philadelphia, according to researchers from Harvard and the Reinvestment Fund, a Philadelphia-based investment organization hired by the Pennsylvania Department of Banking to study mortgage foreclosures in the state.

Mr. Apgar and other experts note that foreclosure is the worst, but not the only, negative consequence faced by overextended minority families.

In areas where home prices have appreciated, families that have defaulted on their loan might still be able to sell their homes before they are seized. Though they would lose their homes and damage their credit records, their financial troubles would not register in foreclosure statistics. People who live in the great middle of the country where home prices have not risen rapidly may not have that option because demand there is soft.At stake are historic gains in minority home ownership rates, which until the mid-1990's had been stagnant for two decades.

Last year, black home ownership fell slightly, to 48.8 percent, from 49.7 percent in 2004, only the second year the rate has declined in the last 10 years. Still, the fact that nearly half of all black households and half of all Hispanic families owned their homes is widely seen as a step forward.

In 1995, fewer than 43 percent of black families and just under 44 percent of Hispanic families owned their own homes. Among all minorities, a group that includes Asians and mixed-race households, the rate was 51 percent in 2005, up from 44 percent a decade ago. By comparison, more than three-quarters of white households owned their own homes in 2005, up from 71 percent.

The Role of Subprime Loans

In addition to lowering crime and revitalizing blighted neighborhoods, home ownership also helps families build wealth that can pay for education and be passed on to the next generation, said Dowell Myers, a professor at the University of Southern California who has studied Hispanic home buying patterns.

Experts attribute the recent increase in minority ownership to income and employment gains, but also to the growth of subprime lending, which provides credit in areas where few lenders and banks operated before. The expansion of credit, particularly to the poorest minorities, has been controversial.

Advocates for the poor say that aggressive lenders and mortgage brokers have given loans to borrowers who are lured by dreams of home ownership but have few savings and little job security. Many families might be better off, and receive less expensive loans, if they saved for a down payment and paid down other debts before buying a home, said Kathleen E. Keest, a senior policy counsel at the Center for Responsible Lending, a housing advocacy and research group based in Durham, N.C.

And for all the talk of expanding opportunities to the less well-off, experts note that the gap between minority and white home ownership remains unchanged from a decade ago at about 25 percentage points.

Loan data that mortgage lenders must disclose show that minorities are far more likely to receive subprime loans than whites. About 30 percent of home purchase loans made to blacks from 1999 to 2004 and 20 percent of home loans made to Hispanics were subprime, compared with 10.4 percent of loans to Asian- Americans, only slightly higher than for white borrowers.

In 2004, the latest year with data available, nearly 27 percent of loans taken out by minorities were subprime, up from 15 percent in 1999.

The disparities persist even when income is taken into account. Among minority borrowers who made $51,000 to $75,000 a year, 23 percent received subprime loans. By comparison, only 10 percent of whites in the same income bracket did. Minorities who made $151,000 to $175,000 were twice as likely to get a subprime loan as whites were.

The Mortgage Bankers Association said lenders used a number of factors like credit scores and the size of down payments, in addition to income, to determine what kind of loan and interest rates are offered to borrowers. For instance, "whites have traditionally had more wealth than minorities, and that's a factor in who gets what kind of loan, as well," said Douglas G. Duncan, the chief economist at the trade group.

Almost 70 percent of subprime loans issued since 2001 will shift from low, fixed introductory rates to higher adjustable rates in the next two years, according to an analysis by Fannie Mae.

Still, Mr. Duncan added, subprime lending has benefited minorities and lower-income borrowers. For every 100 subprime loans made nationally, only 5 end in foreclosure. Some increase in total foreclosures is to be expected simply because the number of mortgages has increased substantially over the last decade, he said.

Mr. Duncan and others in the industry say that higher foreclosure levels in the Midwest should not be seen as worrying signals for the nation because the region's economic problems are unique.

Ohio lost 215,000 jobs from 2001 to 2005, with 63,800 of them coming from the Cleveland metropolitan area. The state unemployment rate was 5.6 percent in December, up from 4 percent in 2000. The jobless rate in Cleveland was 5.5 percent in December, up from 3.8 percent.

James Rokakis, the Cuyahoga County treasurer and an advocate of tighter lending standards, said a 5 percent national foreclosure rate for subprime loans was acceptable to lenders because their profits were greater on those loans than on prime mortgages. But he noted that his county's 17 percent rate is creating blight in many neighborhoods.

In Slavic Village, once a thriving Eastern European enclave where many of Cleveland's steelworkers lived and now an increasingly black and Hispanic neighborhood, about 500 homes, or 5 percent of its properties, are vacant, Mr. Rokakis said. "Who pays for the damage done to these communities?"

Vikas Bajaj reported from Cleveland for this article and Ron Nixon from New York.

* Copyright 2006 The New York Times Company

[101A]

THOUGHT OF THE DAY:

You own a home in a distant suburb of any major with few nearby jobs.

Gas gets increasingly expensive over the course of say 10 years, tripling in price (12% rise per annum).

Your transit costs to get to your far away job in the city center have increased dramatically, creating a large incentive to live closer to your job.

The same holds for everybody else.

Question #1:

What happens to the aggregate (overall) demand for those suburban homes?

Question #2:

Based on your answer to #1, would this lead to an increase or decrease in the price of those suburban home, all other things held equal?

Question #3:

Since interest rates are intrinsically tied to inflation rates, if the cost of energy is rising at roughly 12% as in question #1, does that imply that interest rates will be rising as well?

Question #4:

If the demand for houses is inversely related to interest rates, do higher interest rates imply a greater or lesser demand for homes?

Answers in next post, in case you really need them.


OR...you could move away from that town altogether; set up a fancy home office 1600 miles away in the basement of a house in a small, stagnant economy northeastern town (which has a university your wife can teach at), suburb to no-where, and only fill up you gas tank once a month.

You can take the cash equity you cleared on your last house, pay off ALL your non-mortgage debt, put 20% down on a house 1/2 the price of your previous one, AND invest high five-figures of the remaining.

THEN you "retire" at 38 with your kids college AND your retirement funded. :smokin

BTW: Market forces & house prices don't necessarily work as cleanly as you suggest.

First off, the tripling of gas prices, although annoying to an upper-middle-class commuter, doesn't mean they have to drastically change their life-style. So they spend an extra $100 - $200 on gas; big deal! There house payment is $3,500 - $4,000! The gas price is a drop in the bucket - and most are educated enough to lock in w/a fixed rate mortgage while they are still (historically) very low. I don't know anybody outside of California who is sitting on an ARM, waiting for that grace period to expire. They are locked and loaded for 15 or 30.

[101A]

One more thing.

Re-reading this thread, I don't believe Dan knows the definition of "median" - seriously.

[RandomGuy]

OR...you could move away from that town altogether; set up a fancy home office 1600 miles away in the basement of a house in a small, stagnant economy northeastern town (which has a university your wife can teach at), suburb to no-where, and only fill up you gas tank once a month.

You can take the cash equity you cleared on your last house, pay off ALL your non-mortgage debt, put 20% down on a house 1/2 the price of your previous one, AND invest high five-figures of the remaining.

THEN you "retire" at 38 with your kids college AND your retirement funded. :smokin

BTW: Market forces & house prices don't necessarily work as cleanly as you suggest.

First off, the tripling of gas prices, although annoying to an upper-middle-class commuter, doesn't mean they have to drastically change their life-style. So they spend an extra $100 - $200 on gas; big deal! There house payment is $3,500 - $4,000! The gas price is a drop in the bucket - and most are educated enough to lock in w/a fixed rate mortgage while they are still (historically) very low. I don't know anybody outside of California who is sitting on an ARM, waiting for that grace period to expire. They are locked and loaded for 15 or 30.

What you describe is indeed something I will probably do at some point. Although to be honest, even better than living in the US is living in an Asian economy where your nominal dollars will go MUCH farther. Thailand for example.

As for housing market factors being more complex than I portrayed:

Indeed they are. I was simplifying for the sake of argument. I think the underlying factors will still remain powerful.

That extra 100-200 per month makes it into a BIG deal when you are talking about disposable income and people who aren't saving much to begin with.

Lastly:

I think your figure of $3500-$4000 a month on house payments is a *bit* high. I doubt many families can afford to spend $48,000 per year on housing.

Your implication that the increase in gas prices is "no big deal" is directly contridicted by the statistics given about falling median incomes.

[scott]

Someone riddle me this... why are we comparing 2004 versus 2001? Where are year over year comparisons? We don't say the NASDAQ fell in 2004 because its lower than it was in 2000, so to average incomes "fell" in 2004 because they are lower than 2001 is, quite frankly, misleading.

[xrayzebra]

Here is an article I found this morning, which I am sure Dan wont like nor any of
the other Bush basher's. But that doesn't change the facts. It will also help
Dan to understand "Median" incomes.



Wealth and wages
By Alan Reynolds

Mar 2, 2006


When the Federal Reserve's Survey of Current Finances for 2004 was released, the leading newspapers naturally indulged their propensity to make the news look as bad as possible.

"U.S. families' wealth stagnated during the economy's recession and recovery from 2001 through 2004, as lackluster wage growth, sagging stock prices and rising debt levels offset the gains from higher home values," wrote The Washington Post. "For the typical American household," added The New York Times, "net worth -- the sum of all assets less debts -- barely increased, to $93,100 from $91,700."

The figures are for median wealth, not for typical households (whatever that means). Median just means half had more and half less. Young people always start with less, but don't stay young forever. What is surprising is not that median wealth did not rise much from 2001 to 2004, but that it rose at all. The Fed's survey for 2001 was taken before September 11, which makes wealth that year look much better than it was after the disaster. But even for the year as a whole, the S&P 500 averaged 1194.2 in 2001 compared with 1130.7 in 2004. The NASDAQ fell from 2035 to 1986.5 from 2001 to 2004. But this is 2006, not 2004. Household wealth did indeed fall dramatically from March 2000 to March 2003, but has since rebounded quite impressively.

After the previous recession in 1990-91, it took longer for real household net worth to recover. Median net worth was virtually unchanged from 1989 to 1995, but rose more than 31 percent by 2004. The mean average of wealth fell from $270,000 in 1989 (in 2004 dollars) to $260,800 in 1995, but reached $448,200 in 2004. When the news came out during the election year of 1996 that household net worth had fallen for the past six years, do you suppose The Washington Post and New York Times wrote about that with the same sense of despair and tragedy they just used to describe a three-year increase?

This year, even The Wall Street Journal's urge to be politically correct apparently overcame all caution about being statistically correct. The Journal imagined the Fed's report "found a widening gap between households at the top and the bottom of the economic ladder," because "the net worth of the typical family in the bottom 25 percent fell 1.5 percent." A correction the next day mentioned that net worth among the bottom 25 percent had increased by 41.7 percent. But facts won't keep true believers from believing in a widening gap.

In a 1998 speech, Alan Greenspan concluded that since at least 1989, and perhaps since 1963, "inequality of household wealth . . . remained little changed in terms of the broad measures." Edward Wolf, who once made a big fuss about a modest cyclical change in wealth distribution from 1983 to 1989, recently found "wealth inequality . . . remained virtually unchanged from 1989 to 2001." Ownership of stocks, homes and college degrees is more widely dispersed than ever before -- there is less concentration of financial, physical and human capital, not more.

The Fed's wealth survey was also transformed into a soapbox for an entirely different complaint. "Many economists, including some Fed policymakers," wrote The Washington Post, "are puzzled by the relatively weak wage growth of recent years despite strong productivity growth." If so, those economists should take up another occupation.

The Economist jumped on board, saying that "compensation has trailed productivity by only a little since 2001. Put another way, labor's share of national income has fallen." But that always happens after recessions. Employees' share of business income is highest in recessions because profits are depressed. When labor's share is highest many employees lose their jobs and many investors (often the same people) also lose their wealth. As a share of the net value added of nonfinancial corporations, employee compensation hit a postwar record of 77.4 percent in 2001 -- even higher than previous records set in 1974 and 1980. By 2003-2004, employee compensation was back to a 74.3 percent share, which was still relatively high.

What is surprising is not that real wages and benefits grew by "only" 1.8 percent a year in 2004 and 2005, but that they increased at all. Real hourly compensation fell for three years in a row at the start of President Clinton's first term, from 1993 to 1995, and then rose only 0.8 percent in 1996. During the 1996 election, do you suppose The Washington Post and New York Times wrote about the prolonged drop in workers' compensation with the same sense of despair and tragedy they now use to describe a 1.8 percent yearly increase?

Real compensation has always fallen whenever there were big spikes in energy prices -- such as 1974, 1980 and 1989. Why that didn't happen this time is a miracle -- a productivity miracle.

Energy prices in the consumer price index rose 17 percent last year, after rising by 10.9 percent in 2004 and 12.2 percent in 2003. It would be irrational to expect wages and salaries to be increased enough to make such huge energy costs painless. Higher energy prices did not provide domestic non-energy industries with more money to pay workers. On the contrary, higher energy costs are a foreign tax on both employers and employees.

We have been extremely fortunate in the past three years that many of those corporate executives we love to hate have made their businesses so much more efficient (productive) that the latest energy cost squeeze has been much less painful to both workers and investors than any previous energy price spike. That has been a remarkable accomplishment, which may explain why our major newspapers have been looking so hard for bad statistics amid the good news.



Copyright © 2006 Creators Syndicate


--------------------------------------------------------------------------------

Find this story at: http://www.townhall.com/opinion/columns/alanreynolds/2006/03/02/188382.html

[boutons_]

Our Financial Failings

Family Savings Look Scary Across the Board

By Neil Irwin
Washington Post Staff Writer
Sunday, March 5, 2006; F01

Meet the typical American family.

It has about $3,800 in the bank. No one has a retirement account, and the neighbors who do only have about $35,000 in theirs. Mutual funds? Stocks? Bonds? Nope. The house is worth $160,000, but the family owes $95,000 on it to the bank. The breadwinners make more than $43,000 a year but can't manage to pay off a $2,200 credit card balance.

That is the portrait of the median American household as painted by the Federal Reserve Board's Survey of Consumer Finances. The survey, which does not distinguish between sizes of families, nevertheless offers the most detailed look available of the balance sheet of U.S. households.

The Post asked a half-dozen financial planners to review the Fed data about what different groups of Americans own and what they owe. We asked them what advice they would give someone confronting the financial situation faced by the average American, using median numbers, or the midpoint at which half of the population is above and half is below each indicator.

They don't like what they see.

"This is awfully sobering," said Peter Speros, managing director of Sullivan, Bruyette, Speros & Blayney Inc., a wealth-management firm in McLean. "These numbers are just so much worse than I would have thought. It's a real eye-opener."

Specifically, Speros and the other planners said, if the average family walked into their offices, they would sit them down and give them some tough talk. Time to pare back expenses, the financial advisers would say, in order to build a cash reserve big enough to get everyone through a layoff or other unforeseen adversity. And the family would get an earful about saving more aggressively for retirement, so members could have some hope of retiring at a reasonable age and maintaining the standard of living they and their family are accustomed to. Only 49.7 percent of American families even had a retirement account in 2004.

Those at the median are not the only Americans who need help. The planners had advice for the typical family headed by someone who is young, middle-aged, retired, and for the affluent and poor. The bad news: Each of these groups need to do some things differently. The good news: Their financial problems are not hopeless.

© 2006 The Washington Post Company

[Peter]

Someone riddle me this... why are we comparing 2004 versus 2001? Where are year over year comparisons? We don't say the NASDAQ fell in 2004 because its lower than it was in 2000, so to average incomes "fell" in 2004 because they are lower than 2001 is, quite frankly, misleading.

Indeed.

[RandomGuy]

Wealth and wages
By Alan Reynolds

Mar 2, 2006

The Economist jumped on board, saying that "compensation has trailed productivity by only a little since 2001. Put another way, labor's share of national income has fallen." But that always happens after recessions. Employees' share of business income is highest in recessions because profits are depressed. When labor's share is highest many employees lose their jobs and many investors (often the same people) also lose their wealth. As a share of the net value added of nonfinancial corporations, employee compensation hit a postwar record of 77.4 percent in 2001 -- even higher than previous records set in 1974 and 1980. By 2003-2004, employee compensation was back to a 74.3 percent share, which was still relatively high.



Has this guy noticed that profits at US companies have been strong and getting better? This guy seems to imply that the Economist was off track because profits have been weak.

The rest of the article was interesting though.

[RandomGuy]

Just a bit of perspective though:

Cato senior fellow Alan Reynolds previously served as director of economic research at the Hudson Institute and as vice president and chief economist at both Polyconomics and at the First National Bank of Chicago. One of the original "supply side" economists, Reynolds worked with Alan Greenspan and Larry Kudlow on David Stockman's Office of Management and Budget transition team in 1981. In 1996, Reynolds served as research director with the National Commission on Tax Reform and Economic Growth (a.k.a. the "Kemp Commission")

http://www.cato.org/people/reynolds.html

I just so this does not seem to be an ad hominem attack: He has some data to back up his theories and does have a good idea as to what he is talking about.

BUT

His opinions do conflict with a lot of generally accepted economics.

[Yonivore]

The median has increased. That means half the population are below a higher threshold. That's not a bad thing. The average has declined in real terms but the average is above the median.
What Peter is trying to say here is that the rich are making less and the poor are making more. Enough so that the average wage dropped while the median wage rose.

[Nbadan]

Just a bit of perspective though:

Cato senior fellow Alan Reynolds previously served as director of economic research at the Hudson Institute and as vice president and chief economist at both Polyconomics and at the First National Bank of Chicago. One of the original "supply side" economists, Reynolds worked with Alan Greenspan and Larry Kudlow on David Stockman's Office of Management and Budget transition team in 1981. In 1996, Reynolds served as research director with the National Commission on Tax Reform and Economic Growth (a.k.a. the "Kemp Commission")

http://www.cato.org/people/reynolds.html

I just so this does not seem to be an ad hominem attack: He has some data to back up his theories and does have a good idea as to what he is talking about.

BUT

His opinions do conflict with a lot of generally accepted economics.


That's because The Economist and Townhall.com are Neocon rags. To characterize the data they used as misleading would be to actually give it some measure of respectability.

[Nbadan]

What Peter is trying to say here is that the rich are making less and the poor are making more. Enough so that the average wage dropped while the median wage rose.

I call Bullshit. Let's hear from a real economist...

Graduates Versus Oligarchs
February 27th, 2006
By PAUL KRUGMAN
The New York Times


<snip>The truth is quite different. Highly educated workers have done better than those with less education, but a college degree has hardly been a ticket to big income gains. The 2006 Economic Report of the President tells us that the real earnings of college graduates actually fell more than 5 percent between 2000 and 2004. Over the longer stretch from 1975 to 2004 the average earnings of college graduates rose, but by less than 1 percent per year.<snip>

A new research paper by Ian Dew-Becker and Robert Gordon of Northwestern University, “Where Did the Productivity Growth Go?,” gives the details. Between 1972 and 2001 the wage and salary income of Americans at the 90th percentile of the income distribution rose only 34 percent, or about 1 percent per year. So being in the top 10 percent of the income distribution, like being a college graduate, wasn’t a ticket to big income gains.

But income at the 99th percentile rose 87 percent; income at the 99.9th percentile rose 181 percent; and income at the 99.99th percentile rose 497 percent. No, that’s not a misprint. Just to give you a sense of who we’re talking about: the nonpartisan Tax Policy Center estimates that this year the 99th percentile will correspond to an income of $402,306, and the 99.9th percentile to an income of $1,672,726. The center doesn’t give a number for the 99.99th percentile, but it’s probably well over $6 million a year.<snip>

Should we be worried about the increasingly oligarchic nature of American society? Yes, and not just because a rising economic tide has failed to lift most boats. Both history and modern experience tell us that highly unequal societies also tend to be highly corrupt. There’s an arrow of causation that runs from diverging income trends to Jack Abramoff and the K Street project.<snip>

It’s time to face up to the fact that rising inequality is driven by the giant income gains of a tiny elite, not the modest gains of college graduates.

[scott]

That's because The Economist and Townhall.com are Neocon rags. To characterize the data they used as misleading would be to actually give it some measure of respectability.

The Economist has the reputation of being rather liberal, so much in fact that "NeoCons" I know label it a Liberal Rag. Because The Economist has both sides pissed of, I'd say it's a pretty good indication that it's right on the money.

[scott]

Someone riddle me this... why are we comparing 2004 versus 2001? Where are year over year comparisons? We don't say the NASDAQ fell in 2004 because its lower than it was in 2000, so to average incomes "fell" in 2004 because they are lower than 2001 is, quite frankly, misleading.

Anybody?

[Peter]

That's because The Economist and Townhall.com are Neocon rags. To characterize the data they used as misleading would be to actually give it some measure of respectability.

Yeah man, The Economist is just like Townhall.com or Newsmax.com.

[xrayzebra]

Yeah man, The Economist is just like Townhall.com or Newsmax.com.


And your source of information is?

[scott]

And your source of information is?

www.sarcasmfordummies.com

[Nbadan]

The Economist has the reputation of being rather liberal, so much in fact that "NeoCons" I know label it a Liberal Rag. Because The Economist has both sides pissed of, I'd say it's a pretty good indication that it's right on the money.

Your right, I was thinking of the Weekly Standard. The Economist is ok.