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Lost Income

Blog Mar 5, 2013

American wage earners have suffered the biggest downturn in wages in 20 years and the Lost Income hit consumers like a economic roller coaster falling $505.5 billion in January. The decline was precipitated by higher gasoline prices, and a 2% payroll tax increase.

For someone earning $50,000 a year this translates into about $1,000 fewer dollars to spend for the year. For a household of two high-paid workers that comes out to $4,500 less.

“I’ve felt it and my co-workers are complaining about it,” remarked Gabriel Peciado, age 20, of West Covina, who works for an auto parts and accessories store, AutoZone. “When I have less money I don’t eat out as much. I usually like to go to Kings games and concerts … but I’m not doing that now.”

Analysts noting that consumer spending grew in January also remind us that consumer behavior tends to lag tax increases and will likely be reflected in the months ahead.

Savings are another area of concern as we learn in January that personal savings dipped to 2.4% of disposable income down from 6.4% in December. It used to be that saving a portion of income was looked upon as a benefit to society, creating more stable families and individuals, but there is not much incentive with interest rates as low as they are.

“One thing is perfectly clear — most American will remain cautious in their spending habits,” stated director of consumer economics at IHS Global Insight Chris Christopher.

There has been a lot talk about a recovery but things still seem to be bumping along. Do you remember for a while each year was going to be the “summer of recovery” that never happened?

“In case you haven’t seen a sales report these days, February MTD sales are a total disaster,” said Jerry Murray, Wal-Mart’s vice president of finance and logistics, in an e-mail to Wal-Mart executives, describing month-to-date sales. “The worst start to a month I have seen in my ~7 years with the company.”

The Wal-Mart execs are not busying themselves looking for a misplaced decimal point, they, along with the rest of income earners are looking for their lost income.

Thumbnail Photo We believe that everyone deserves a properly developed strategy for financial safety.

Lynette Zang

Chief Market Analyst, ITM Trading

Sources & References In This Article

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