by Gary D. Halbert

October 7, 2014

Unemployment Dips Below 6%, But Incomes Stagnate


1.  US Unemployment Rate Dips to 6-Year Low

2.  Why President Obama Can’t Sell This Economy

3.  More Than Jobs, Americans Need Rising Incomes

4.  The Last Year Has Been a Tough One For Income

5.  A Glimmer of Hope: Capital Spending is Rebounding

6.  Potomac & YCG Webinar Recordings Available Now


Last Friday’s unemployment report came in better than expected. The headline unemployment rate fell more than anticipated, from 6.1% in August to 5.9% last month. The number of new jobs created last month was also better than expected at 248,000.

Given that the unemployment rate is now below 6%, and given that 2Q GDP expanded by 4.6%, you might think the economy is finally off to the races. But what is becoming increasingly clear is that wages for most Americans have been stagnant or falling since before the Great Recession began in late 2007.

As we will see below, this trend of stagnant income has actually been with us since the early 2000s. Without rising incomes, there’s little reason for people to feel like their financial lives are getting better or for the economy to grow at a faster rate.

Fortunately, not all the news is bad. While the vast majority of Americans believe that we’re either still in a recession or the country is headed in the wrong direction,pessimism in the business community is lifting. Companies are investing more in capital assets. After years of sitting on their hands, companies are beginning once again to build their businesses.

Finally, recorded versions of our recent webinars with Potomac Fund Managementand YCG Investments are now available on our website at Both managers explain in detail how their investment strategies work. I encourage you to watch these videos to see if their strategies are a fit for your portfolio.

US Unemployment Rate Dips to 6-Year Low

Last Friday’s unemployment report for September came in better than expected, and the jobs numbers for July and August were revised higher as well. The official unemployment rate fell more than expected to 5.9%, down from 6.1% in August, according to the government’s Bureau of Labor Statistics (BLS). That’s the lowest level in more than six years.

Civilian Unemployment Rate

The US economy added 248,000 jobs in September, well above the pre-report consensus of 215,000, and well above the dismal 142,000 reported for August. The BLS also revised upward the previous estimates of jobs created in July and August by a total of 69,000. The economy has created an average of 213,000 new jobs per month over the past year.

As usual, not all of the news was good. The percentage of working-age Americans in the labor force dipped to 62.7% in September, from 62.8% in August, the lowest since February 1978. A lot of the Americans leaving the labor force are Baby Boomers retiring, but many are people who have simply given up hope of finding a good job and therefor are no longer counted as unemployed.

Many others have dropped out of the labor force, which shows up in the numbers as a 3.3 percentage point drop in the participation rate since 2007. That might not seem like a big number, but it represents apprx. 7 million people who would be working or looking for work if they hadn’t dropped out.

Combined with all the unemployed and underemployed, that’s a lot of people who are contributing less to the economy than they would have in a 2007 scenario. Some draw government subsidies funded by taxpayers and have no other income.

Also, average hourly earnings did not improve as expected, ticking down to $24.53 in September from $24.54 in August. Wages have been a persistent weak spot in the US economy – and a cause for pessimism among American workers – remaining stagnant even as unemployment has been in a steady decline.

Other measures of unemployment are improving but are still elevated. The U-5 unemployment rate, which includes those who want to work and looked for a job in the previous four weeks, fell from 7.4% to 7.3% in September.

Unemployment Rate

The U-6 unemployment rate, which includes those working part-time but would prefer full-time jobs, fell from 12.0% to 11.8% in September. While these numbers are encouraging, both are still significantly higher than desired.

All in all, the September unemployment report was positive. You can bet that President Obama will be touting the 5.9% unemployment rate at each and every campaign stop from now until November 4.

Why President Obama Can’t Sell This Economy

The president is in full campaign mode ahead of the upcoming mid-term elections. He desperately wants the Democrats to retain majority control of the Senate and limit the seats lost to GOP candidates. So he’s out there campaigning for Democrats who are up for re-election and new candidates – at least those who will appear with him.

The president’s message is that the economy has recovered, and he has lots of flowery statistics to back him up. In his mind, he saved the US economy from catastrophe, and the economy’s finally coming back strongly now. In addition to the latest 5.9% unemployment rate, the economy grew by a stronger than expected 4.6% (annual rate) in the 2Q. And he has a litany of other economic stats that he quotes to bolster his case that the economy is stronger that it really is.

The problem is that most Americans simply do not buy it. Some polls still show that almost three-fourths (72%) of Americans believe the economy remains in a recession. The latest Associated Press poll found that 68% of respondents believe the country is headed in the wrong direction, versus only about one-third who believe we’re on the right track. Obama’s job approval rating remains mired at 43%, while 53% disapproveaccording to the latest RealClearPolitics average.

The grim reality is that most Americans don’t like the “new normal.” And that fact leads us directly to today’s main topic.

More Than Jobs, Americans Need Rising Incomes

Since the economic recovery began in 2009, average hourly wages have barely kept up with inflation – and not even that last year. Without rising incomes, there’s little reason for people to feel like their lives are getting better or for the economy to grow at a faster rate. The picture looks even worse when you focus on the middle class.

The Census Bureau released data last week showing that the median household income didn’t rise at all in 2013. In fact, by this measure, the typical family has beendoing worse since long before the recession. The chart below, from the Center for American Progress, shows just how long the average American family has been running in place or losing ground.

Median household income

These trends were easy to ignore during the real-estate bubble years, when families could compensate for stagnant incomes with home equity loans. But today, all of this has become painfully obvious to Americans.

In fact, things are even worse than what is illustrated in the chart above. Wage gains, adjusted for inflation, have not gained much over the last 40 years for

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