As I was preparing for my daily radio show broadcast yesterday, I began looking at a variety of polls over the last year as to what was the most important issue to voters for the 2016 election. One poll after another, regardless of whether it was from a conservative or liberal perspective, showed the same thing. The following is a sampling of the three highest ranking issues.
- CBS/NYT: Economy/Jobs, Healthcare, Immigration
- George Washington University: Economy, Illegal Immigration, Jobs
- CBS: Economy, Healthcare, Terrorism
- USA: Jobs, Security, Immigration
- CNN: Economy, Terrorism, Illegal Immigration
- Bloomberg: Unemployment, Healthcare, Real Incomes
- CNN/ORC: Economy, Healthcare, Budget Deficit
As the Riddler in Batman would query:
"Riddle me this, Batman. How is it that the mainstream media analysis continues to report how strong the economy is, yet in every major poll over the last year the ECONOMY and JOBS rank as the highest concern?"
I have discussed the disconnect between Wallstreet and Mainstreet previously stating:
"So, while the markets have surged to 'all-time highs,' the majority of Americans who have little, or no, vested interest in the financial markets have a markedly different view."
This is a critical point as headline reports continue to suggest a vastly improving and sustainable economic recovery. However, the reality is seemingly quite different.
It is there that we find yet another riddle. Central Bank interventions were an emergency measure to keep global economies from falling to depressionary levels. Now, that headline economic data, bank balance sheets, and employment has recovered, there is little need for emergency measures to be continued. Right? This was an interesting note from Sam Ro this morning:
"There's been a lot of talk in recent months about the Federal Reserve's plan to tighten monetary policy by raising rates later this year. This would be a significant sign that the economy has finally moved away from the financial crisis.
In reality, there are far more central banks cutting rates than hiking rates around the world. This, as policymakers do what they can to stimulate growth and stoke inflation in their local economies.
'The big story in 2015 – a full 7yrs after the Lehman event – remains that of central bank easing,' Bank of America Merrill Lynch's Barnaby Martin writes. 'Year-to-date, central banks across the globe have cut interest rates 49 times, with China and Serbia being the latest.'"
There certainly appears to be less of a view of a global economy on the verge of acceleration. But yet, despite what appears to be a very important shift in Central Bank positioning, asset prices continue to linger near all-time highs while the U.S. has experienced on of the longest strengths of employment growth since the 1990's. But it is there that we find another riddle.
Just recently, a WSJ poll showed that American's are less concerned about the "Wealth Gap" in America but more worried about how to get ahead financially:
"By a greater than 2-to-1 margin, however, Americans said they're less worried about the income gap, per se, and more worried about how middle- or working-class Americans can get ahead financially, according to the latest Wall Street Journal/NBC News poll."
But wait, hasn't surging asset prices created a "wealth effect" that would lead to higher levels of consumer confidence and spending? After all, this was precisely the goal declared by then Fed Chairman Ben Bernanke in 2010 when he launched a second quantitative easing program.
The problem is that creating a surge in asset prices does not affect the majority of American's that have little, or no, money to invest in the financial markets. For roughly 75% of American's it is a function of declining median incomes and an inability to save. The following chart shows the seasonally adjusted median household income through March of 2015 as compared to Gallup's poll of family living needs.
The shortfall is quite evident. So, riddle me this?
"Where does the money come from to fill the gap between living standards and incomes?"
The chart below answers that question. The difference between the $58,000 needed for a family unit and median incomes, defined as the "income gap," is then compared to household credit. See the problem here?
Besides the very brief "forced deleveraging" of balance sheets during the financial crisis, as households defaulted on debt and financial institutions cut credit lines, consumers have returned to credit to supplement incomes with a vengeance since 2011. It is difficult to build wealth and participant in surging financial markets when there is no excess income with which to save and invest.
There is considerable evidence behind the current dislocation between Corporate America and Main Street. Real unemployment remains extremely elevated as witnessed by the labor force participation rate and employment-to-population ratio at levels not seen since the early 1980's.
As I discussed in "5 Questions That Every Market Bull Should Answer," the disconnect between the "have's" and the "have not's" is quite evident:
"Suppressed wage growth, layoffs, cost-cutting, productivity increases, accounting gimmickry and stock buybacks have been the primary factors in surging profitability. However, these actions are finite in nature and inevitably it will come down to topline revenue growth. However, since consumer incomes have been cannibalized by suppressed wages and interest rates - there is nowhere left to generate further sales gains from in excess of population growth."
This is why the gap between corporate profits and the number of working employees is the highest level on record. Fewer workers, higher productivity and longer hours for the same pay, or less, equals higher corporate profits. This is great for executives, primarily the top 10% of wage of earners, who are compensated from rising share prices, bonuses and other performance-related compensation, however, for the "working stiff," there is little reward for their labor.
"Welfaring Of America"
At $58,000, Americans' perceptions of the amount it takes just to get by in their community is substantially higher that the national median household income. This level is also well out of reach for a bulk of the lower 30% of American households.
However, this gap between incomes and living standards goes a long way to explaining the "welfaring" of America. As incomes have waned against a rising cost of living - it is not surprising to see more individuals receiving income supplements in the mail either from "food stamps", social security benefits or disability claims. All of which are currently at, or near, record levels. The chart below shows the level of social security benefits as a percentage of disposable personal incomes which is currently at the highest level on record.
What is extremely clear is that there is something amiss with the statistical headline employment and economic data. While there are indeed pockets of improvement, which should be expected following a recessionary contraction, there is a lack of widespread recovery. That sentiment is clearly reflected in every major poll of American's over the last year.
It is also quite evident from the simple fact that Central Bank's globally are continuing stimulative campaigns to try and sustain the current economic environment. This is why the Federal Reserve is highly unlikely to raise interest rates this year...if ever.
What is important is that there is a clear disconnect between the financial markets, statistical economic headlines, and the reality of the vast majority of American consumers. So, riddle me this - what happens when that disconnect is eventually resolved?