Home No Raise, Fewer Jobs, Less Dividends, Less Credit = No Economic Growth.

No Raise, Fewer Jobs, Less Dividends, Less Credit = No Economic Growth.

user profile picture Chris Martenson Apr 09, 2009
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Note: This blog post is a bit longer than usual…in it I add up the cumulative impacts of changes in income and credit on the overall economy.

Much is being trumpeted by the government and the press about “the bottom being in” and that a recovery is right around the corner. The recent stock market gains are being used as a primary source of evidence for this idea.

But is the stock market a good indicator of anything? We might note, somewhat critically, that the stock market did a terrible job of predicting the downturn (see below) and wonder why it should be any better at predicting the recovery.

Now that the NBER has finally backdated the recession to the 4Q07 (marked by the blue and gray rectangle), we can see that “the great discounting machine” known as the stock market failed to foresee the current downturn and does not appear to predict anything. With a track record like that, we might want to get ourselves a “second opinion” on where things stand right now.

So let’s turn again to the base data. We know that just over 70% of the economy rests on consumers. How are “the consumers” doing here? One thing we might analyze is how much money and credit consumers have, under the theory that the more they have, the more they’ll spend. Let’s start with jobs.

Job losses

NEW YORK ( — Job losses continued to mount in March and unemployment hit a 25-year high, according to the government’s latest reading on the battered labor market Friday.

For the first three months of the year, 2 million jobs have been lost, and 5.1 million jobs have been lost since the start of 2008.

Assuming that each of those jobs was at the average yearly wage of roughly $40,000, or $3,300 per month, we can estimate that 2M x $3,300 or $6.6 billion of income per month is now gone from the national stream just in 2009.

Since the start of 2008, this number would be nearly $17 billion per month in lost spending power.


NEW YORK ( — About a quarter of businesses have frozen workers’ salaries for 2009 in the wake of a pessimistic economic outlook, according to a survey released Monday.
Outsourcing and consulting firm Mercer said 25% of organizations surveyed said they have already decided not to raise their employees’ pay, and another 20% are considering a salary freeze this year. A year ago, just 5% of companies planned to suspend raises for their staff.

It would appear that wage hikes are not going to be a comforting source of income gains this year. No surprise there. In aggregate, this has added up to a nearly $30 billion per month decline in wage and salary disbursements according to the BEA:

Private wage and salary disbursements decreased $29.9 billion in February, compared with a decrease of $27.1 billion in January. The January change in private wages and salaries was reduced by an adjustment of $20.0 billion (at an annual rate) for smaller-than-usual bonus payments.


Well then, how about dividends? Dividends are a major source of income in this country.

If you recall, in 2007 Microsoft pumped out an enormous $32.6 billion dollar, one-time, dividend payment, sending a shock wave through the data.

Microsoft Corp.’s $32.6 billion special dividend payment last month raised personal income nationwide and probably worsened the U.S. current account deficit in the fourth quarter, the Commerce Department said.

About $24 billion of the payment will be recorded as personal dividend income in December, for an annual rate of $288 billion, the department’s Bureau of Economic Analysis said. That’s enough to boost total U.S. personal income by 2.9 percent in the month, according to Bloomberg News data.

We will note that it was insane to annualize this one-time payment, but that’s what the BEA did, causing all manner of comparison difficulties. At any rate, we might take away from this that this $24 billion translates into a 2.9% gain in personal income, which translates into a very rough approximation of 0.1% shift in personal income for every $1 billion in dividend income that applies to personal income.

Given this, we might wonder what a $77 billion dollar reduction in dividends would mean.

NEW YORK, April 7 /PRNewswire/ — Standard & Poor’s, the world’s leading index provider, announced today that a record 367 of the approximately 7,000 publicly owned companies that report dividend information to Standard & Poor’s Dividend Record decreased their dividend payment during the first quarter of 2009…

‘The mammoth $77 billion reduction in dividend payments during the first quarter is eye popping,’ says Howard Silverblatt, Senior Index Analyst at Standard & Poor’s. ‘The full impact of these cuts will be felt this quarter, when the dividend check is sent in the mail.’

Based on the Microsoft experience, I can estimate the size of the impact on personal income at nearly $58 billion or 5.8% of personal income.

When we review this corporate reduction in dividends against past years, we see that 2009 stands out as being not just slightly different, but starkly different. No surprise there either I suppose.

Declines in consumer credit

The largest drop in consumer credit ever recorded was just announced this week, which is really quite a shocking thing to those who believe that you “should never underestimate the US consumer.”

WASHINGTON (MarketWatch) – The balances on American consumers’ credit cards fell at a 9.7% annual rate in February, the fastest rate of decline since 1976, the Federal Reserve reported Tuesday.

Total outstanding consumer credit, including both revolving and nonrevolving credit, fell at a 3.5% annual rate, or $7.5 billion to a seasonally adjusted $2.56 trillion, the Fed said. Credit expanded by a revised $8.1 billion, or 3.8%, in January.

Adding it all up

  • Wage and salary declines (due to freezes and job losses): ~$30 billion/month
  • Dividend hits: ~$75 billion/quarter or $25 billion/month
  • Credit declines: ~$7 billion/month (if February results repeated).

Together we are in the vicinity or $60 billion per month in reduced money or credit, which, if translated directly into reduced economic activity, would be a nearly 5% decline in US GDP this year.

Of course, any propensity towards additional saving would only compound the amount of decline in GDP, and the rate of personal savings is up quite a bit on a year over year basis.

I have not yet seen any change in this sort of fundamental data that would indicate that a bottom is in, or that the recovery has begun yet.

I cling to the antiquated notion that the economy consists of real people spending either real money or using credit.

The stock market seems to differ with this view and appears to me to be overly anxious to return to “how things used to be,” without taking into account the possibility that things are now different that they used to be.

At least, that’s how I see it.