Class Split Widens

Introduction

Here we have it: the government reports increased consumer confidence, but there are more poor people and people without health insurance (WSJ subscription required) than ever. How is this possible?

My thesis all along about society, culture and the economy is that it is all relative. In other words, different systems can be made to work for human beings. What these data show is that the Bandit economy is digging deeper into America.

The Wall St Journal is at pains to find an explanation of increased consumer confidence. That's because, as the article says, there has been economic weakness lately. There was an actual decline in non-defense orders, and high oil prices may be causing inflation. Nonetheless, the CRB found that people think jobs are more available and better times are ahead.

At the same time, the Census Bureau reports increased poverty, and an increasing poverty rate. While the fraction of medically uninsured did not increased, the numbers did. The 45.8 million uninsured are probably not a higher fraction because the total population increased, which implies that almost all those entering the population and the workforce have no health insurance. So, if new jobs are being created, they are without benefits.

My explanation for the consumer confidence numbers is that ordinary people are lagging indicators. They do not have an up-to-date picture of the economy, so they are reporting on job conditions they believe exist based on old observations. I don't think the consumer confidence numbers are a good indicator of where the economy is now. I am reinforced in that opinion by the poor growth numbers, oil prices and other factors that suggest economic turmoil ahead. For example, a cold winter in the Eastern United States is going to be difficult as there are insufficient heating oil and natural gas supplies; i.e., there are already foreseeable shortages. Given all that, I think the odds of recession by next spring are slightly more than 50%.

I also believe that consumer confidence and similar numbers are reflective of the upper middle classes - those who are working and doing OK. While the surveys do try to correct for the distribution of incomes and wealth, the fact is that consumers are those with money. Impoverished people are not usually big consumers. For that reason, I take the increasing poverty numbers as ominous. More than ever, America is a Third World country.

It is interesting that Danziger (see below) tells us that things are better than than were 20 years ago. His statements plainly reveal what should be common knowledge:

	Poverty increased during the Reagan-Bush Administrations
	Poverty decreased a lot during the Clinton Administration
	Poverty went back up during this Bandit Administration

Danziger notes that, due to a somewhat improved economy, poor people are almost back to where they were before the Bandit. Since the Bandit's selection, the upper classes are at least 10% better off.

Question of the decade: Is the Bandit upside down Robin Hood?

From the Wall St Journal ...

U.S. Poverty Rate Rises to 12.7%

Associated Press
August 30, 2005

10:45 a.m.WASHINGTON -- The nation's poverty rate rose to 12.7% of the population last year, the fourth consecutive annual increase, the Census Bureau said Tuesday.

The percentage of people without health insurance didn't change.

Overall, there were 37 million people living in poverty, up 1.1 million people from 2003.

Asians were the only ethnic group to show a decline in poverty -- from 11.8% in 2003 to 9.8% last year. The poverty rate among the elderly declined as well, from 10.2% in 2003 to 9.8% last year.

The last decline in overall poverty was in 2000, when 31.1 million people lived under the threshold -- 11.3% of the population.

The number of people without health insurance grew from 45 million to 45.8 million. At the same time, the number of people with health insurance coverage grew by 2 million last year.

The median household income, meanwhile, stood at $44,389, unchanged from 2003. Among racial and ethnic groups blacks had the lowest median income and Asians the highest. Median income refers to the point at which half of households earn more and half earn less.

Regionally, income declined only in the Midwest, down 2.8% to $44,657. The South was the poorest region and the Northeast and the West had the highest median incomes.

The increase in poverty came despite strong economic growth, which helped create 2.2 million jobs last year.

Sheldon Danziger, co-director of the National Poverty Center at the University of Michigan, said the poverty number is still much better than the 1980s and early 1990s.

"The good news is that poverty is a lot lower than it was in 1993, but we went through a hell of an economic boom," Mr. Danziger said. "Nobody is predicting we're going to go through another economic boom like that."

The poverty threshold differs by the size and makeup of a household. For instance, a family of four with two children was considered living in poverty if income was $19,157 or less. For a family of two with no children, it was $12,649. For a person 65 and over living alone, it was 9,060.

The estimates on poverty, uninsured and income are based on supplements to the bureau's Current Population Survey, and are conducted over three months, beginning in February, at about 100,000 households nationwide.

Consumer Confidence Rises Amid Improved Job Market

By MICHAEL S. DERBY
DOW JONES NEWSWIRES
August 30, 2005
10:18 a.m.

NEW YORK -- U.S. consumer confidence levels rose in August in response to favorable labor market conditions, as views of current economic circumstances climbed to their best reading in nearly four years, a report released Tuesday said.

The Conference Board, a private research group, said that its index of consumer confidence for August moved to 105.6, versus the revised 103.6 seen in July. The current month's reading was above the 101.0 forecasters in a survey conducted by Dow Jones Newswires had been predicting.

The group attributed much of August's unexpected buoyancy to the state of hiring. "Consumers appear to be weathering the steady rise in gas prices quite well," Conference Board economist Lynn Franco said.

She noted the present situation index, hitting its best mark since September 2001 at 123.6, versus July's 119.3, was driven up by overall economic conditions and labor markets. Franco added the strength of that measure, along with the group's expectations gauge, suggests consumers see more of the same favorable circumstances as the year moves forward.

The expectations index for August stood at 93.7, from 93.2 the month before. That measure has moved through a tight range since the spring.

The Conference Board's report and its upbeat findings are surprising in light of economists' expectations and the most recent findings of the University of Michigan August consumer sentiment data, which had softened on energy concerns.

Indeed, the consumer confidence report comes at a challenging time for the U.S. economy, as energy prices continue to surge and pressure U.S. consumers. Most economists are optimistic about the economic outlook and Federal Reserve officials have given no sign their appetite to hike interest rates is cooling off. But oil prices, fueled by growing demand and now the shock of Hurricane Katrina, have been rising, and eroding consumers' ability to spend.

The Conference Board report appears to reflect little of the economy's downside. Survey respondents who view economic conditions as "good" moved up to 29.8% of the poll, from 28.7% in July, while those who deem current conditions as bad ebbed to 15.1%, versus July's 16.7%. The report also showed that consumers who think the economy will improve over the next half year rose to 18.7% of the survey, from 17.9%. That outstripped the modest gain of those who believe conditions will worsen, which hit 9.7% in August, after 9.5% in July.

The research group said its labor market findings were "upbeat." Respondents who saw jobs as "hard to get" slipped to 23.2% of the poll, from 23.8% the month before. Those who saw jobs as "plentiful" moved up to 23.5% of respondents, from 22.9% the month before.

The outlook for the jobs market was more mixed, but even so, the Conference Board noted that August was the first month since October 2001 where the percentage of those who saw jobs as plentiful exceeded those with a more pessimistic assessment.

Separately, U.S. factory orders tumbled last month in a fairly broad-based decline that would have been sharper if not for rising non-durable goods demand. Factory-goods orders decreased 1.9%, after rising 0.9% during June, the Commerce Department said Tuesday. June orders were originally seen climbing 1.0%.

Demand for durable goods, designed to last at least three years, fell 4.9%, unchanged from an estimate Commerce made in a report last week that flashed a negative sign for U.S. manufacturing amid other, positive data released recently on the sector. Economists were reluctant to speculate whether higher energy prices had contributed to the drop.

Higher prices for oil might have been a driver in the 1.7% advance of non-durable goods orders included in Tuesday's factory orders report. Some analysts were expecting an increase because of the rising prices, which boost the value of orders for petroleum, a non-durable good.

Petroleum prices may have also helped push up the value of factory inventories, which rose 0.5% in July. Analysts expect a reduction in stockpiles during the spring that took a big bite out of second-quarter economic growth will be followed by businesses replenishing shelves -- leading to stronger demand, greater output and faster growth in the third quarter.

Tuesday's report showed a yardstick for business investment demand -- non-defense capital goods orders excluding aircraft -- decreased by 4.1%, after rising 4.9% in June.

Factory shipments increased by 0.7%. Unfilled orders rose by 1.0%.

--Jeff Bater contributed to this article

Write to Michael S. Derby at michael.derby@djn.com

WalterB - 08:58:38 - Tuesday, 08/30/2005

Last update: 11/11/2007