Forget About GDP, Look at Sagging Household Income

We are regularly bombarded with economic data and other information that attempts to protray the economy as bumbling along at a sub part GROWTH pace.  The rebound in pockets of the real estate market from desperation lows to an improvement in the unemployment rate thanks to millions dropping out of the workforce are dishonestly heralded as signs of economic recovery. Yet, people know that something is just not quite right - that the reality of every day life and the optimism of a smattering of favored statistics (favored by those who benefit from the positive spin as opposed to the stark reality) are out of sync.

Here is a very simplistic, but real answer to why things just don't seem quite right.

Consider the chart below from John Williams and his Shadow Stats service. It shows REAL income, or income adjusted to account for inflation, or the sagging buying power of the dollar. Inflation eats away at buying power as it is like a tax that takes money away from you. Most don't realized just how fleeced they are over time by inflation and how they become poorer as a result.

As illustrated, real income is in the tank, where it was back in the 1960's. True, we take home more dollars (though real wage deflation is taking a toll as our economy becomes more services oriented) than in the 60's, those dollars don't go as far today.

The text book definition of recession is two consecutive quarters of GDP contraction. But since the GDP figure can be goosed by using unrealistically low inflation assumptions, I see GDP portraying the sub par economic growth it portrays as being useless and almost propaganda in its nature. On the other hand, when something like real wages is considered - it is no wonder why the present economic times feel tough. They are. This is a far more practical example of why it feels recession like in the great "out there".

If this chart were to have shown a rise in real income, then we could have a serious conversation about a return of prosperity. But there is no evidence to be found for that in this data series.