Disposable income

When you think about the United States economy, there is a lot of thought given to all the problems it has. Certain analysts promote the idea that the problems are so great that we are going to collapse, swamped in tremendous levels of debt, high unemployment, rampant inflation and/or deflation, and maybe a collapse of our Government.

What is mostly ignored is that while things are bad for many people, the majority of Americans are impacted hardly at all. Yes, if you have a 401k or own a house you have "paper" loses unless you have to sell right now. I watched the values of my houses and investments drop rather dramatically. I've been recently watching the investments rebound about half way back and I would like to see them recover more, and I have re-calibrated the mix to provide a bit more safety. However, I've been watching these amounts go up and down over almost thirty years and my software still tells me that since I started investing I'm up about 50%. I was up a lot more in 2007/2008 and as I watch the numbers I feel better and/or worse but afterwards I go about the rest of my day.

Similarly I have lived in my primary residence for about 25 years. After I bought it in the mid 80s, there was a decline in real estate in this area and for almost 10 years it was pretty much worth either slightly more or slightly less than I paid for it. Then there was a spurt in prices and the same house suddenly was worth a whole bunch more. This pretty much continued for years until the house was priced so high that I wouldn't have been able to buy it if I didn't already own it. Well, it has now come down some amount, although not as bad as many other areas, but of course my mortgage payment is the same, my monthly bills are pretty much the same and outside of how I feel there is very little real change.

What is my point? I may be in a fairly fortunate scenario since my monthly income is secure. However, even if unemployment goes to 10% that means 90% of Americans who are in the workforce are employed. In addition, the percentage of Americans who are receiving pensions, social security or annuities, a rather large percentage, will be no worse off. The heart of the economy is still beating. The turmoil is primarily in the fringes. This doesn't mean that everything is fine, and probably the biggest widespread impact is the loss of housing and investment wealth that makes people feel poorer and led to a significant shift to savings vs spending, but I was looking at a graph of disposable income form 2006 to 2009 and except for a few months in 2008 when there was first a significant increase in April (probably due to the stimulus payments) followed by a return to the more average level immediately thereafter, it has changed very little month to month.

During that period the use of that income has varied and for a while high gasoline and oil prices ate up a lot of it and now a lot of it has shifted from consumption to saving, but, the amount of disposable income has not dropped dramatically (nor has it increased). However, for the majority of Americans their income has continued and with an increase in consumer confidence we may easily see an increase in pent up demand. When that happens we will have turned a significant corner.