The question came up during the January 10, 2008 Republican debate regarding the economy.  Are we heading towards a recession?  Are we in a recession right now?  Of course, a degree of pandering from the candidates was expected and delivered.  Huckabee mentioned the price of insurance, the price of gas, and the general increase in costs of goods due to increased shipping costs etc.  I would expect to hear some of this during a debate, because, after all, they are trying to appear compassionate.  But I am now starting to hear the same banter from conservative talk show hosts and republican strategists.  In fact, I watch O’Reilly and listened to Laura Ingram say that the economy was teetering on the edge.  I did not hear this rhetoric about a month ago, but now “It’s the economy, stupid” is back and apparently we are teetering on the brink of recession.

Why the change?  Why have conservatives, all of a sudden, begun to spew Democratic talking points?  Is this a myth brought on my impassioned speeches from Barack Obama?  I decided to investigate.

Unemployment is at 5%, so the issue is not related to unemployment.  If we had long lines at the unemployment office, it would be easy to say the economy was down.  If the stock market was down, then we could use that as an indicator.  The Dow is down over the last month, but if you look at the last 3 years, the Dow is up 20%.  If you look at 5 years, the Dow is up over 56%.

One test would be to compare costs of goods and services to earnings to really see how people are really doing.  After all, it really doesn’t matter if gas prices elevate as long as the cost to earnings ratio is the same or lower.  So I have taken some statistics, which I love to analyze, and presented them below.

Median Usual Weekly Earnings

Let’s look at the last 3 years.  The Department of Labor recently published national numbers for Q3 2007.  First take a look at the “Median usual weekly earnings” which measures the middle point of weekly earnings for full time employees over the age of 16.  The number represents, not the average, but the middle of the salary curve.  In other words, there is the same number of people earning less than the median than are earning more than the median.  In Q3 2007, there were an estimated 146 Million workers over the age of 16.  In Q3 2004, national median weekly earnings were $632.  In Q3 2007, the number jumps to $695.  That is a 10% increase in weekly earnings or approximately 3.33% per year.  That would put median annual earnings at $36,140, up from $32,864 if we use a 52-week year. 

If we look at the same number for High School grads (no college), the jump is from $574 to $610 (6.3% over 3 years or 2.1% per year increases).  For those with some college there has been a 7% increase in earnings during the 3 year period, averaging 2.33% per year.  The next number may not surprise you, but those with a bachelor’s degree or higher jumped from $984 to $1088 per week in salary.  So, for those with a 4-year college degree, the mean annual earnings have jumped 10.6% over the 3 year period to just over $56,500.  With an advanced college degree, the annual mean jumps to $65,200 (an 8.2% increase over 3 years).

Consumer Price Index

The U.S. Department of Labor also measures prices of key items, like electricity, natural gas, fuel, bread, fruit, meats, and milk.  These are the essentials for a consumer and therefore provide a good picture.  Let’s start with gas prices.  In Q3 2004, the average price of gas was $1.89.  In Q3 2007, this price was $2.79.  That is a jump of 280%.  The average person drives 15000 miles annually or 288 miles per week.  If the average car gets 20MPG, each week the consumer would need use 14.4 gallons of gas.  14.4 gallons of gas cost the consumer an average $27.21 in 2004 and $40.17 in 2007.  In other words, it costs the average consumer an extra $12.96 more per week to get to drive.

Now let’s look at other bills.  Heating Fuel is up 16% to $1.23 for 1 therm of energy.  The average home uses ~15 therms per week adding up to $18 per week.  In 2004, the same person would need to pay $15.52, an increase of $2.48.  If I add in eggs, bread, beef, and chicken, the average increase in price is ~24% since 2004.  This sounds high, but we are only talking about an increase of $1.20.  If you extrapolate the 24% increase across a total weekly grocery cost of $50, what cost you $50 in 2004, would cost you $62 in 2007 or an extra $12.  Another factor is health care insurance premiums which are also up 23% since 2004.  This 23% equates to nearly $12 per week.

If we add up the increases for natural gas, fuel, and groceries, and health insurance, the average consumer needs to spend an extra $40 per week to pay the bills.  In 2004, the expense would be ~$144, rising to ~$183 in 2007, an increase of 27%.  This sounds really high, and if you saw this alone, it would support the theory that Americans are in financial trouble.  The real question is how this increase relates to wages.  While the average prices of these items went up $40 per week in the last 3 years, the mean wage has gone up $63.

So based on the numbers, the American worker is doing better than 3 years ago in almost every area.  Their cost to earnings ratio is down and their investments are up.  They have an easier time finding a job and, yes, a better paying job than 3 years ago.  Now, still, some people are doing worse, and some people still struggle.  That will always be the case.  But is the average American in trouble or is the economy in trouble?  Time will tell…but right now, I say no.