The Indicator from Planet Money - The Strangest Indicator Of 2020

Average real disposable income this year is on pace to rise at the fastest rate in more than 35 years. How could that be? We break down the strangest economic indicator of 2020. | Support public radio here.

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everyone stays in Cardiff here. This is the indicator from Planet Money which is a show in which we normally tell the stories behind certain economic indicators every now and again, we come across an indicator surprising. It doesn't need a story so much as it needs an explanation is an indicator that makes us understand the world in a slightly different way just straight-up numbers-wise and that is Today Show. Yeah, this is our choice for maybe the strangest economic indicator. We've come across this year. So here it is. We'll just come right out and tell you the strangest indicator of the year is the growth in average real disposable income and Yates. That's a mouthful Stacy. I guess we should probably explain this. I don't know in English then we'll proceed to economics. Okay, great disposable income is the money that you make from your job or money that you get

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The government after you subtract the taxes that you have to pay. So this is income in other words that you have available to you available to actually spend if you want to and so far this year disposable income for the average person in the US has gone up about 6% from last year. And by the way that is after adjusting for inflation and what this means and this is the real takeaway here. Is it disposable income for the average person this year is actually on Pace to rise at probably the fastest rate in more than 35 years the fastest rate since at least 1984. How is this possible? I mean you expect income to go up when the economy is doing well when there are a lot of jobs when people are getting raises and their salaries are going up but this year the pandemic and the recession it cause you know, what they've been brutal millions of people are out of work the economy isn't even close to fully recovering from this yet. So

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How is it possible that average disposable incomes have actually gone up and not just gone up but actually shot up at a rate. We haven't seen in decades. We're going to answer that question right after a break.

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Okay. So the question we asked right before the break was given how horrible the economy has been this year. How is it that the average disposable income his shot up by so much is a short answer and there's a longer answer. The short answer is the government the cares Act was passed in March Central Ian's of dollars into the economy that money went directly into people's hand in the form of unemployment benefits or stimulus checks all of that counts as income. I don't really care Zacks with the largest economic stimulus passed by the government in US history by a lot and there is no longer more detailed and probably more interesting answer start with this very few people have experienced the economy in the same way this year. For example, there are some people who never lost their jobs or took a pay cut what they still might have gotten the stimulus check of up to $1,200. So they're disposable incomes obviously went up other workers get lose their jobs, but only temporarily they were rehired

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For a lot of those workers the money from the cares act replaced all of their lost income while they were out of work and in some cases those people are actually making more while they were unemployed. Then they would have been had they kept their jobs. So their incomes were a little higher this year. And of course, there's also just a lot of workers who did not receive any stimulus money from the government, but also did not lose their jobs or their salaries and since the economy is also made some sectors even more important like parts of the tech sector or warehousing jobs in jobs for drivers. Some of them might have even gotten raises and so for all of the people in these groups, we've just discussed their incomes are fine doing well, even in some cases, even if obviously it's been a tough year for many other reasons, but of course, there are other folks from the cares. I wasn't quite enough to prevent them from struggling. For example, there's a rising number of people who are long-term unemployed didn't workers who have been unemployed for more than half a year there but a million people who are

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Long-term unemployed before the pandemic now, there are close to 4 million. And these are the workers were probably struggling the most especially since the higher unemployment benefits from the cares act ended in July plus. We also know that more than 10 million renters for example are pined on rent and utilities. There's just a lot of suffering still out there and a lot of these folks have already spent their stimulus checks. So here's the answer to the question of how average disposable income has shot up, even though the economy is objectively bad. There's a lot of folks like the long-term unemployed and others who have lost income this year. The cares act did keep their incomes from falling even more but not enough to keep them from falling behind on their bills. But the tears did Bruceton comes for a huge share of the population and left it over all incomes are going up at the fastest rate in decades and there is another puzzle to this indicator, which is this

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Given the average incomes have gone up by so much. Why hasn't the economy recovered back to where it was before the pandemic, you know, people have more disposable income spending it. The answer is the people have saved a lot more their income this year. They have not been spending it. That's partly because there have been fewer opportunities to spend money with so many restaurants and retail stores and sporting venues close for business and parlays also because that's what a lot of people do when the economy goes bad. They save more money to make sure that they have enough money in case they lose their jobs because they're worried the consequence some people have a lot more money stored up for the future so that if the economy does start bouncing back next year because people get vaccinated against coronavirus people might start feeling better about spending money again, and they will have a lot of money to spend which could be really great for the economy. So where does that leave us? Well, it really depends on who you are until the country gets.

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Vaccinated the overall economy could stay in rough shape affect the pace of the recovery has already started slowing down but people who have kept their jobs or maybe. Their jobs back after briefly losing their jobs. They might just be fine. They're still making money now. And in fact, they might have even made more money than they expected to this year. And once the economy does recovered they'll be in okay shape. They've got more money saved up. Of course, there are still millions of people who are not in that position people who lost their job and with the virus surging again throughout the country the prospects of finding a new job, especially for people who are long-term unemployed might be getting worse right now. So for them a lot is now writing on whether Congress will pass another bill that expands unemployment or find other ways to get money into their hair. So that's it the surprisingly fast growth in average real disposable income is our pick for the strangest economic indicator of the year and a lesson is a

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You should not ever just take an indicator if face value. You should dig a Little Deeper or at the very least listen to a podcast that will do that for you. Definitely the second one. I highly recommend. I mean, I'm just saying we can't help ourselves really be our podcast podcast.

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Shout out of gratitude by the way to Economist Jason Furman Hooper pointed us to the change in real disposable income per person this year. This episode of the indicator was produced by General Huxtable. In fact check by Sean Saldana our editors Patty Hearst and the indicator is the production of NPR.

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