I suspected there was something being left unsaid when the headlines began streaming this morning that personal incomes in May surged 1.4 percent. And, indeed, there was.
Private wage and salary disbursements decreased $12.4 billion in May, compared with a decrease of $0.7 billion in April. Goods-producing industries’ payrolls decreased $12.9 billion, compared with a decrease of $12.2 billion; manufacturing payrolls decreased $9.8 billion, compared with a decrease of $4.9 billion. Services-producing industries’ payrolls increased $0.5 billion, compared with an increase of $11.5 billion. Government wage and salary disbursements increased $3.9 billion, compared with an increase of $5.7 billion.
All over the country, as the impact of the recession deepens, workers in a broad swath of the economy—the numbers are likely in the millions—are being furloughed as both the public and private sectors try to cut costs. A recent Fortune magazine article calls this season “the summer of the furlough.” The article cites a recent survey of human resources executives at 518 U.S. companies that found that, as of the start of April, 44 percent had either already undertaken or were considering implementing shortened workweeks or involuntary furloughs at their organizations. Meanwhile, you can see the results of this Google News search on the word “furlough” to get a sense of the breadth of the problem.
This, along with the trillions of dollars of wealth that workers have lost either because of unemployment and underemployment or because of the declining value of their homes or retirement accounts, is yet another drag on the economy that the Obama administration and the Congress will ultimately have to address.
The reason that the top-line number in the May personal incomes report is positive—a $167.1 billion net increase over the previous month—was “as a result of provisions of the American Recovery and Reinvestment Act of 2009.
Provisions of the Act reduced personal current taxes and increased government social benefit payments.” Of that, $157.6 billion was comprised of a one-time $250 payment to Social Security recipients and certain other retirees. Without the direct effect of government stimulus efforts, the income increase would have been a meager $20.6 billion.
Charles McMillion, whose economic analyses appear on our blog, also crunched the numbers in today’s report.
BEA’s data also show that in May, price adjusted total compensation to employees fell by 0.1 percent and it would have been worse but for rising private health insurance premiums that their employers were forced to pay that is counted as added compensation. Indeed, since the current downturn began 17 months ago, price-adjusted compensation for all workers (not medians!) has fallen by 1.3 percent. It’s been even worse for “entrepreneurs,” with their real non-farm earnings also falling by 0.1 percent in May but plunging by 3.6 percent from December 2007 to May 2009.
And yet, despite this declining compensation and entrepreneurial income, over this same period of the longest recession since 1933, price-adjusted real after-tax incomes have risen by 5 percent.
If it seems odd that incomes are soaring even as jobs, wages and profits are declining, the facts are simple even if they clash with the best media narratives money can buy. BEA’s report also shows that total price-adjusted taxes paid fell another 1 percent in May (after plunging by 5 percent in April) and are down 4.8 percent over the last 17 months. The April “tea baggers” and those that breathlessly repeated their utterly preposterously claims seem to have little interest in the reality-based economy.
And government payments to individuals – including Social Security and Unemployment Insurance – rocketed by a price-adjusted 7.9 percent in May and are up 26.1 percent since December 2007.
To recap: Today’s report shows that price-adjusted workers’ wages and total compensation fell in May as did the income of non-farm entrepreneurs; they have fallen since the recession began.
While consumer spending shows some tentative signs of a pickup, the fact that the savings rate has jumped 6.9 percent in May speaks volumes about the mindset of Main Street families: They do not trust that this economy is strong enough to help them land on their feet in the event a furlough becomes a layoff. They are building their own cushions.
All this is happening when, as Paul Krugman noted on his blog Thursday, Republicans are ramping up the narrative that “the Obama economic plan has failed,” poisoning the political atmosphere for a second economic stimulus program. Yet a second economic stimulus is precisely what will be needed to undo the impact of these furloughs and layoffs. We need to do the intellectual and political groundwork now to make sure that such a stimulus effort is not co-opted by the lethal combination of special interests, conservative dogmatism and political cowardice that diluted the first one.
Updated to include excerpt from Charles McMillion report.