Thursday, July 03, 2003

In other employment news, average hourly earnings in the US went up 0.2% in June. Over the past three months average hourly earnings have gone up 0.6%. Of course, over 2003:I output went up 1.8%. We don't have the 2003:II output numbers in yet, but let's assume for the sake of argument the same figure as in the first three months of the year. That means that output is currently growing three times faster than employee compensation.

So from where is the money coming to soak up all this production?

The options: [1] debt; [2] transfer payments; [3] foreign purchases (i.e. exports); [4] capital earnings (e.g. interest, dividends). If I've missed any, let me know.

I think we can all safely eliminate [3]. The US current account deficit speaks for itself.

Perhaps transfer payments are keeping people afloat. In 2002 personal transfer payment income rose 10%, and after falling to 5.0% growth in 2002:III, is back up to 6.7% growth in 2003:I.

Capital earnings are looking up again as the stock market bubble returns.

Finally, debt is always popular, particularly financed via home mortgages.

So how is the US economy being propped up today? Transfer payments, the stock market bubble and massive borrowing fueled especially by ultra-low home mortgate rates (which have already bottomed out). Is it just me or is this happy little cycle fundamentally unsound?

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