It is that time of the year when the President of the United States delivers his annual"State Of The Union" address. Over the weekend, the Associated Press discussedPresident Obama's retooled message stating:
"For most of last year, President Barack Obama tempered his pitch on the economy: It may be improving, he would say, but millions of Americans had yet to benefit from the rebound.
But now that caveat is gone, replaced by a bullish new message as Obama marches into his second-to-last year. 'American resurgence is real,' he says. 'Don't let anybody tell you otherwise.'"
This will be the primary message delivered by the President in the upcoming speech as his focus, according to the President's aides is:
"The two-thirds of voters who were too disgruntled to cast ballots in November."
It was the beating that Democrats took in the last election, as many traditionally Democratic states elected conservative representatives, that sent a clear message to the White House. With the 2016 Presidential elections rapidly approaching, it is imperative to regain those votes. It is from this priority that the President will paint a decisively positive economic picture during his upcoming speech. He hopes that by pointing to a falling unemployment rates, economic growth and higher confidence levels; it will give voters a sense of confidence in the President's accomplishments.
The question is whether the majority of the voting public will agree with the President's message?
Before the President takes to the podium with his bullish optimism, he might want to consider the following charts.
Government Debt
Since 2009, Government debt has surged by $7 Trillion (through Q3-2014) while real economic growth has risen by just $1.8 Trillion. However, even this number is inaccurate as the current government debt levels do not include other liabilities of the government such as social security and other social welfare programs.
The following chart quantifies it a bit better when you look at cumulative increases in debt and real, inflation adjusted, GDP.
Yes, the economy is growing, however, that growth has come at a huge cost of a debt burden that will be amplified when borrowing costs begin to rise with increases in interest rates. Furthermore, considering that President Obama admonished the previous administration's increase in debt, the explosion in the amount of debt required to generate economic growth is unsustainable longer term.
Employment
While the current Bureau of Labor Statistics employment reports currently shows the unemployment rate has fallen to just 5.6%, that number is obfuscated by the roughly 93 million workers that are currently not counted as part of the labor force. As I havediscussed previously, when it comes to economic strength it is full-time labor that leads to household formation and higher consumption. The chart below shows the amount of full-time labor as a ratio of the working age population.
Importantly, when the employment-to-population ratio or the labor-force participation rate is discussed, the plunging levels in these ratios are often dismissed simply as a function of the "baby boomers" heading into retirement. However, if we factor out those individuals by only looking at the employee-to-population ratio of 16-54 aged individuals as a percent of that age group the picture fails to improve.
While the unemployment rate has certainly plunged to just 5.6%, one would be hard pressed to find that 94.4% of the population that "want to work" are actually working.
Personal Incomes
The annual rate of change in personal incomes has been on a decline since the turn of the century. This is a function of both the structural shift in employment (higher productivity = less employment and lower wage growth) and the drive to increase corporate profitability in the midst of weaker consumption.
The chart below shows the disparity between corporate profits and employment and wages. (Full a complete discussion on this issue read "Corporate Profits & Income Equality.")
The recent bounce in the wages to profits ratio was NOT a function of an increase in wages but a plunge in profits due to the exceptionally cold winter at the end of 2013. As you can see, since then the trend lower has resumed.
Government Assistance
The issue of declining incomes and rising "income inequality" is really best shown by the level of social benefits as a percentage of disposable incomes today. Today, roughly 1-in-3 households receive some form of government assistance.
It is here that the President will be most challenged in presenting his "economic" story. While he will point to rising asset prices, improved headline employment numbers and economic growth as reasons to be "optimistic," with almost 80% of the country living roughly paycheck-to-paycheck it will be a hard argument to win.
Housing
When it comes to the economy, it is home ownership that is the reflection of economic well-being. Since 2009, the government has poured trillions of taxpayer dollars into the housing market to try and increase activity. The effect of those injections have been marginal to say the least.
However, as I stated above, it is ultimately household formation that leads to higher levels of consumption and stronger economic growth. The chart below is from the recent missive on this issue entitled "Housing - Outside Of Prices, Not Much Recovery."What this chart shows is that the surge in housing activity was NOT by individuals buying homes to live in, but rather speculators buying homes, primarily for cash, and turning them into rentals. With homeownership currently near its lowest levels since the early 1980's, it does not suggest a resurgent economy is in the making.
Economic Prosperity
However, it is the economic prosperity of an individual that truly determines how they will vote at the polls. A recent Fed Reserve survey of consumer finances shows the real disconnect between Wall Street and Main Street economics.
With net worth, incomes, financial assets and business equity ownership at levels substantially below where they were when the President took office, it is not surprising that the Administration is focused on changing their views.
While the data, as reported by government agencies, has been massaged, tweaked, and recalibrated to provide more optimistic output, it is hard to fudge the economic standards by which the majority of the country lives with. Like a game of "Civilization,"the recent mid-term elections sent a pretty clear message that the "serfs" are not happy in the "kingdom."
Defining The State Of The Union
While the President will do his best to put a positive spin on the current economic environment, and the success of his policies, when he gives his "State of the Union"address, it would be worth remembering whom he is actually addressing. This is a point not lost even on Democrats as represented by Elizabeth Warren last week in her address to the AFL-CIO:
"For tens of millions of working families who are the backbone of this country, this economy isn't working. These families are working harder than ever, but they can't get ahead. Opportunity is slipping away."
As with all things - it is the lens from which you view the world that defines what you see. For WallStreet, things could not be better. For Main Street, most everything could be better. The President has a lot of "convincing" to do if he expects to change voter's attitudes between now and the 2016 Presidential election.
Lance Roberts
Lance Roberts is the General Partner and Chief Portfolio Strategist for STA Wealth Management. He is also the host of "Street Talk with Lance Roberts", Chief Editor of "The X-Factor" Investment Newsletter and the Streettalklive daily blog. Follow Lance on Facebook, Twitter and Linked-In.
