A new study reveals that American median income rose over the past two years. Yet household buying power remains 6 percent below levels seen at the start of the recession.
Median annual household income rose to $52,100 in June, a 2.8 percent increase from the inflation-adjusted low of $50,700 in August 2011. But this figure is still 4.4 percent ($2,400) lower than at the end of the recession in June 2009. Moreover, when combined with the 1.8 percent drop that occurred during the recession, median household income remains 6.1 percent ($3,400) below its level in December 2007, when the economic slump began.
Level of education has provided a buffer against the decline, the study shows. For example, households headed by individuals with only a high school diploma have seen their income plummet 9.3 percent since the end of the recession, to $39,300. By comparison, households headed by individuals with an associate degree, post-recession income dropped by 8.6 percent to $56,400. Among households headed by individuals with a bachelor’s degree or more, median income fell 6.5 percent, to $84,700.
In contrast, the Economic Policy Institute revealed in June that CEO pay has jumped 37 percent since 2009.
The Boston Consulting Group (BCG) published a report lauding how the U.S. has become one of the most cost-effective places in the developed world to manufacture. By 2015, BCG notes, average labor costs in the U.S. will be about 16 percent lower than in the U.K., 18 percent lower than in Japan, 34 percent lower than in Germany, and 35 percent lower than in France and Italy. While this may in fact increase exports, as the report claims, it is unlikely to help middle class Americans.
U.S. Durable Goods Orders Drop in July
Orders for long-lasting durable goods fell sharply by 7.3 percent in July, exceeding economist predictions of 4.0 percent, a new U.S. Commerce Department report reveals. The data reflects the steepest drop in big-ticket purchases in nearly a year.
The drop in orders for durable goods, which are products designed to last at least three years, including computers and transportation items, suggests potential signs of weakness and declining confidence among businesses. The steepest decline in new orders was transportation equipment; civilian aircraft fell by 52.3 percent in July. Boeing reported a sharp drop in plane orders, booking only 90 in July compared with 287 in June. Computers and electronic product shipments fell 3.2 percent to 228.8 billion, following a slight increase in June.
Core durable goods orders also declined by a seasonally adjusted 0.6 percent during July, while orders for core capital goods, which are considered a key barometer of private sector business investment, decreased 3.3 percent last month, despite a forecast of a 0.5-percent gain. The decline in orders suggests a slow improvement in manufacturing from setbacks earlier this year, despite positive economist predictions.
“While the decline in the headline reading was not a major surprise, the weak detail of the report casts doubt over the previously improving outlook for business investment,” Andrew Grantham, an economist at CIBC World Markets in Toronto, said in a 4-traders report.
One positive gain was motor vehicles and parts orders, which rose 0.5 percent, as more consumers buy cars at a stronger pace after holding off on purchases due to the weak economy
OECD: U.S. and Other Advanced Economies Accelerate
Growth in advanced economies picked up speed in the second quarter, rising to 0.5 percent, according to the Organization for Economic Cooperation and Development (OECD). Member economies had grown 0.3 percent in the first quarter.
The OECD is a research and policy forum for 34 leading economies.
The U.S., along with Germany, Britain, and France, led the increase, according to provisional data provided by OECD on Thursday. The U.S. grew 0.4 percent, up from 0.3 percent in the first quarter. Britain’s economy rose by 0.6 percent, twice as fast as the previous quarter. Germany’s economy grew at the same rate of 0.7 percent.
The biggest boost came from France, which rallied from a 0.2 percent decline in the first quarter to a growth rate of 0.5 percent. The OECD said that the eurozone had officially entered a state of growth at 0.3 percent from a 0.3 percent contraction in the first quarter.
Japan and Italy saw a slowdown in activity, though both economies still experienced growth. Japan decelerated to 0.6 percent from 0.9 percent in the first three months of the year, while Italy contracted to 0.2 percent from 0.6 percent.
Output among OECD members grew 0.9 percent over the previous year.
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Europe and China Show Signs of Rebound
China and Europe both experienced slight economic upticks in August according to new reports, possibly signifying a recovery period for both areas that have trudged through several sluggish months.
After year-low numbers in July, Chinese manufacturing orders returned to expansion in August, hitting a four-month high, according to a new private report. The Purchasing Managers Index for China from HSBC rose to 50.1 from 47.7. Indicators above 50 represent growth, while indicators below 50 signify contraction. The 2.4-point rise was the biggest gain since August 2010, according to Bloomberg.
Observers were optimistic that the positive figures signified a sustainable recovery for the world’s second-largest economy.
“[The HSBC report] confirms that the economy has stabilized in the short term and downside risks for H2 have declined,” Zhiwei Zhang, China economist at Nomura in Hong Kong, told Reuters.
Meanwhile, a report from London data analysis firm Markit Economics showed euro zone economic activity reached a two-year high in August. The composite output index rose to 51.7 in August, a jump of 1.5 points from July’s figure. Although French output dipped, Germany experienced a 25-month high in manufacturing output.
Economists think the continuing trend of slightly improving figures point to a shaky recovery.
“We expect the euro-zone economy to continue its recovery in the remainder of this year, but it will likely be a slow and uneven process,” Martin van Vliet, an economist at ING Bank NV in Amsterdam, told Bloomberg.
Leading Economic Indicators Climb in U.S.
Conference Board released a report on Thursday showing that its index of leading U.S. economic indicators increased 0.6 percentage points in July. This is slightly better than economists’ expectations of 0.5 percentage points, and portends growth for the second half of 2013.
The leading index rose to 96.0 percent, driven by a drop in firings, rising stock prices, and a boost in lending, all of which hint at a pickup in consumer spending. The interest rate spread, building permits, new ISM orders, and average weekly initial jobless claims were among the largest positive contributors.
Manufacturing hours and manufacturers’ new orders for non-defense capital goods, excluding aircraft, held the index back.
“Following moderate growth in the last few months, the U.S. [leading economic indicators] picked up in July, with widespread gains among its components,” said Ataman Ozyildirim, an economist at the Conference Board. “The pace of the LEI’s growth over the last six months has nearly doubled, pointing to a gradually strengthening expansion through the end of the year.”
Jobless Claims Up but Overall Are Trending Down
The number of Americans filing applications for unemployment benefits increased last week after reaching a record low. But the long-term trend suggests fewer layoffs amid a strengthening economy.
The U.S. Labor Department announced Thursday that first-time benefit applications rose 13,000 in the week ending Aug. 17 to a seasonally adjusted 336,000.
The four-week moving average, which smoothes out volatility, fell to 330,500. It’s the sixth straight decline and the lowest for the average since November 2007. That’s less than half of the 670,000 applicants filing in March 2009 at the height of the recession.
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