Tax data from the BEA, chart by Mish. 

Credit for the above chart goes to Bob Elliott

What if the big driver of increased HH demand to start the year was b/c of higher post-tax income and not seasonal adjustments or weather?

275bln in lower taxes plus 100bln in SS COLA hike and you get a 3%+ rise in disposable income alone.

Tax cut:https://t.co/Ywdzf84Puv

— Bob Elliott (@BobEUnlimited) February 27, 2023

Add to that the nice COLA from social security I talked about earlier:https://t.co/btQvVHS4il

— Bob Elliott (@BobEUnlimited) February 27, 2023

So probably we get a payback down the line on this when it flips from very positive to zero (for SS) or a drag (for taxes). But in the mean time, we could see meaningful "real" demand. Maybe that's what's happening here:https://t.co/oAJrgPquDI

— Bob Elliott (@BobEUnlimited) February 27, 2023

Anything Else? Yes!

Minimum Wage in States with Increases in 2023

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State Minimum Wage Increases

• 27 states raise minimum wages this year. 
• 23 of them did so in January. 
• Connecticut, Nevada and increase their minimum wage on July 1 as shown above.
• Oregon has an increase on July 1, indexed to inflation at a rate based on the CPI.
• Florida has a minimum wage hike on September 30.

Minimum Wage Percentage Increases

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Theory and Practice

Those are huge percentage hikes, at least in theory. In practice, is anyone really paying the low rates in the first chart?

Regardless, it's important to understand that these minimum wage rates put constant upward pressure on companies. 

People will think the minimum wage went up so my pay should rise too. 

To reflect the jump in Disposable Personal Income, I added another line to my personal income charta.

Personal Income Six Ways Billions of Dollars

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Disposable personal income is income after taxes. Since the tax rate went down, income went up.

Personal Income Percent Change From Previous Month

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I added a new line to that chart as well, Real Personal Income.

Real (inflation adjusted) personal income dropped slightly in January. The BEA rounded to one decimal place reported no change. 

Real DPI jumped 1.39 percent. Nominal DPI was up an even larger 2.02 percent. 

The PCE price index rose 0.63 percent which the BEA rounded to 0.6 percent accounting for slight differences in my charts vs BEA reporting.  

Net Result, Sticky Inflation

There is not going to be any increase in productivity from this. It's just more money in people's pockets supporting consumption. 

Regarding wages, either corporate profits sink, or prices go up. And wage increases will be sticky even if the Fed manages to tame housing inflation. 

What About Demographics?

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Demographically Sobering Thoughts on US Employment in the Next Five Years

I strongly suspect most of the recent job growth is part time. Boomer retirements due to age demographics are accelerating.

The number of people 65 and older is soaring while those 55 to 64 is plunging. The participation rate of those 65+ is 19.3 percent.

The participation rate of those 55-59 is 72.7 percent and those 60-64 is 58.5 percent.

This puts an increasing demand for more labor. 

Needing two part-time people to replace one as some workers flat out leave also puts positive pressure on the need for people.

Again, this is inflationary. 

More Rate Hikes Priced In

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Given all of the above, it's no wonder The Market Prices In Still More Fed Interest Rate Hikes

And Because of demographic forces, I do not envision a huge rise in the unemployment rate in the next recession.

For discussion of demographics, please see Demographically Sobering Thoughts on US Employment in the Next Five Years

The Fed is going to have a hard time to say the least.

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