So much can go into the interpretation of any great work of art. For instance, consider the important and brilliantly executed cinematic work Caddyshack. While we are not sure what Director Harold Ramis was exactly shooting for in the film, we can interpret it on many different levels.

One of the more overt interpretations is the religious allegorical theme best delivered through the fall from grace of character Bishop Fred Pickering. He almost shoots the round of his life but then gets struck by lightning immediately after missing a put and swearing. Contrast that with the pseudo-zen Buddhism characters Ty Webb and Carl Spackler and their ultimately positive outcomes. Then there is the dominant socioeconomic interpretation of the film — the rise of the middle class symbolized by the working-class caddy Danny Noonan besting the Bushwood bourgeois led by Judge Smalls.

Just as there are many more levels of interpretation of this great film, there are always multiple interpretations of economic data (some more valid than others). One interpretation of the recent employment report, which we happen to agree with, is that the U.S. middle class is on the rebound (finally).

Recent data showed that real median household incomes, meaning they have been adjusted for inflation, have risen to a new all-time high. After plunging 11.6% below its 1967-2008 trend growth path during the Great Recession, recent growth has closed the gap back to the trend by about 4%. Continued growth at the 1.8% pace seen in 2017 would close the gap by 2021:

However, the gap may be closing more quickly than expected. We now see evidence of a more full-throated recovery in wages: average hourly earnings are now running above 3% year-to-year for the entire employment base of white- and blue-collar jobs.

This is a result of our favorite labor market metric — the prime age (25-54 years old) employment-to-population ratio — rising to a new business cycle high in October. This level is consistent with the pre-Great Recession median for the ratio from the cycle peak in 1990 to the cycle peak in 2007:

As a reminder, we like the prime age employment-to-population ratio better than the Bureau of Labor Statistics' more popular employment measurements (the "U-3" and "U-6" metrics) because the former ratio is less adulterated by demographics or labor force dropouts.

You can certainly interpret the employment report any way you want, but with personal consumption now making up roughly 70% of our economic activity, we believe consumers are doing better. And that’s great economic news to us.


Contact Russell Moenich to learn more about this topic.
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