Friday, March 11, 2016

The Economy

A series of exit polls conducted by Edison research for the TV channels and the Associated Press indicates that about 70% of Republican voters are "very worried" about the economy nad some 23% are "somewhat worried.

On the Democratic side the numbers were less but still significant with 42% saying they were very worried and 39% saying they were somewhat worried.

Yeah I can understand being concerned about the economy. Things have certainly been a mixed bag.

First the good news.

The deficit is down from a high of $1.4 trillion in FY 2009 to $440 billion in FY 2014. The unemployment rate is down from a high of 10,0% in October of 2009 to 4.9% in February of 2016. The Dow Jones Average is up from around 7,000 in March of 2009 to around 17,000 in March of 2016. The GDP is up from $14.2 trillion in 2Q 2009 to $18.1 trillion in 4Q 2015.

Now for the bad news.

The growth in GDP has been about 3.9% per year since 2010 but it only grew 2.9% in 2015 which is the worst growth rate since 0.11% in 2009. The labor force participation rate is at 62.9% down from 66.1% in 2008 so one could argue that the REAL unemployment rate is around 8.1%. However since 2008 the number of retired workers has increased by 2.6% of the population so that would suggest that the REAL unemployment rate is no greater than 5.5%. The deficit is estimated to increase back up to $615 billion in FY 2016 which is going in the wrong direction.

Now for the ugly news.

Based upon the quintile upper limit or the 5% lower limit, real income (adjusted for inflation) for the lowest quintile from 2010 to 2014 has DECREASED by about 1.3% so the poorest 20% of the population actually had less spending power in 2014 than in 2010. For the second quintile it has DECREASED by about 0.2%. So some 40% of American households were worse off in 2014 than they were in 2010. For the third quintile real income INCREASED by about 2.1%. For the fourth quintile it INCREASED by about 3.4% and for the top 5% it INCREASED by about 5.4%.

The change in real income differing by income category is typical of this increasing wealth and income inequality we keep hearing about. It's a real problem. To my mind it's #2 right behind the deficit. At #3 we have the solvency of Social Security and Medicare.

 I suspect, I don't know, but I suspect, that a significant overhaul of the tax system is required to address all three of my top concerns. But what do I know? I'm just an engineer.

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