Decades-Long "Income Gap" Is Finally Reversing

1. February Jobs Report Stronger Than Expected

2. Fed Has Green Light to Raise Rates Tomorrow

3. Rich vs Poor “Income Gap” is Finally Reversing

4. What Is Causing the Reversal in the Income Gap?

5. Conclusions: Three Cheers For Closing the Income Gap


The mainstream media loves to talk about the so-called “income gap” – the fact that incomes have been rising faster for the rich than the poor in America for decades. Yet new independent reports find that this trend has reversed in recent years.

We all need to know about this remarkable reversal, since the mainstream media is not likely to report on it – so that’s what I will focus on today. In a nutshell, wages grew nearly twice as fast for the poorest 10% of Americans than the richest 10% in 2016. This is huge news!

Before we get to our main topic for today, let’s take a look at last Friday’s surprisingly upbeat unemployment report for February. And I’ll also address the likelihood of a Fed rate hike on Wednesday at the conclusion of the latest policy meeting – and President Trump’s likely reaction.

February Jobs Report Stronger Than Expected

The US economy added 235,000 new payroll jobs in February, many more than expected, and the unemployment rate dipped to 4.7%, according to the US Bureau of Labor Statistics report released last Friday morning.

The pre-report consensus was for 190,000 new jobs to be added in February, so the actual report was well above expectations. The Labor Department also revised its January new jobs number to 238,000 up from 227,000 initially reported last month.

Change in jobs

The economy has added almost half a million jobs in the first two months of 2017, the best back-to-back performance since last summer. Wages also rose at the fastest annual pace, up 2.8%, of the nearly eight-year economic recovery – reflecting a tight labor market in which companies have to compete more aggressively for workers.

The widely-followed Labor Force Participation Rate ticked up from 62.9% to 63.0% last month. The “under-employment” rate, which represents workers in part-time jobs but prefer full-time work, fell to 9.2% in February from 9.4% the month prior.

Bottom line: The February unemployment report was better than expected all the way around.

Fed Has Green Light to Raise Rates Tomorrow

Friday’s jobs report is the latest in a series of strong economic data so far this year that have shown positive momentum in retail sales, consumer confidence, manufacturing activity and the housing market.

Because of that, Fed officials rushed to clarify their intentions about the path toward monetary policy normalization (ie – rate hikes). In a speech last week, Fed Chair Janet Yellen said: “A further adjustment of the Federal Funds rate would likely be appropriate” at the March 14-15 policy meeting.

The Chicago Mercantile Exchange’s Fed Funds futures, which reflect market expectations for changes in monetary policy, show a near 100% likelihood that the Fed will hike short-term interest rates by 0.25% at the conclusion of its two-day meeting tomorrow. Interestingly, just three weeks ago the odds of a rate hike were less than 30%.