February 22, 2016

THE ECONOMY WON'T BE A FACTOR:

The U.S. Economy Is in Good Shape (Martin Feldstein, 2/22/16, WSJ)

We are essentially at full employment, with an overall unemployment rate of 4.9% and 2.5% among college graduates. Tight labor markets are leading to increases in hourly earnings and in the producer prices of services. Total payroll employment is up more than 600,000 in the past three months, and the ratio of employment to population, which has been at very low rates for several years, is inching up.

Households are in good shape: Real disposable income is up at a 3.5% annual rate, and the total value of homes is 7% higher than a year earlier. The Congressional Budget Office and others predict that real GDP growth this year will be above 2.5%.

Although the money incomes of middle-class households have been rising very slowly for three decades, the focus on cash income is misleading. The CBO explains that once corporate and government transfers are added to market incomes, and federal taxes are subtracted, the real income after transfers and federal taxes is up 49% between 1979 and 2010 for households in the lowest income quintile (with average total incomes of $31,000 in 2010). Real income is up 40% between 1979 and 2010 for households in the middle three quintiles (with average total incomes of $60,000 in 2010).

Even that understates the true growth rates of real incomes, because government statistics don't fully capture improvements in the quality of goods and services.

Posted by at February 22, 2016 7:26 PM

  

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