Tags: Koesterich | household | income | inflation

iShares’ Koesterich: Consumers’ Wallets Keep Getting Thinner

By    |   Friday, 05 April 2013 08:22 AM

The U.S. economic recovery may be under way, but most Americans are still waiting for their invitation to the party, according to Russ Koesterich, chief global investment strategist at iShares Global and chief investment strategist for BlackRock.

Koesterich said the latest personal income data show American household incomes are barely keeping pace with inflation, and that much of the recent increase in disposable income is simply a gift from the federal government.

He believes a slowdown in economic growth may be on the horizon.

Editor's Note: Startling Proof of the End of America’s Middle Class. Details in the Video

In February, after-tax personal income was up only 0.9 percent year-over-year — less than a third of the long-term growth average, Koesterich said. And most of the growth came from more people working, which he said illustrates that existing workers still cannot get a raise.

“Real household income peaked back in the late 1990s and has been struggling for more than a decade,” he wrote in his iShares blog.

“Until recently, consumers maintained their lifestyles, even in the face of stagnant wage growth, by borrowing more. But as that option is no longer available, or at least not to the same extent it once was, households are now relying on two other supplements: help from Washington and lower savings. Neither of those are sustainable long term.”

Since the end of 2007, overall disposable income has risen by $1.35 trillion, but half of that increase has come from increased government transfer payments, Koesterich noted. The problem going forward is that fiscal tightening is putting pressure on those payments.

Moreover, the U.S. savings rate has dropped by more than 1 percent over the past year, to 2.6 percent in February, raising questions whether it can prop up consumption much longer.

Koesterich believes consumer companies are particularly vulnerable, and he advocates investors trim their positions in consumer-related sectors and instead look “to put new money to work in international markets, mega caps and the energy and technology sectors.”

U.S. median household incomes have “collapsed” since the recession, according to The Washington Post.

Median household income has fallen from $55,438 in December 2007 to $51,404 in February 2013, data from Sentier Research revealed.

The fact that a majority of jobs lost in the recession were mid-wage jobs that have been replaced by low-wage jobs is keeping household income down, The Post reported. And the official ranks of the unemployed do not include the millions of Americans who have become discouraged from finding a job.

The New York Times reported U.S. median income has been depressed recently by inflation.

“While inflation is still quite low, income growth has been so weak that even very little inflation is enough to wipe out whatever gains households are seeing in their paychecks,” The Times concluded.

Editor's Note:
Startling Proof of the End of America’s Middle Class. Details in the Video

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Economy
The U.S. economic recovery may be under way, but most Americans are still waiting for their invitation to the party, according to Russ Koesterich, chief global investment strategist at iShares Global and chief investment strategist for BlackRock.
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2013-22-05
Friday, 05 April 2013 08:22 AM
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