Employment Pyramid

Above is my crude and in no manner scientific analysis of where I think we are in the recovery cycle. While it is totally based on anecdotal evidence I think it does a better than average job of explaining certain things that we are seeing right now nationally regarding the economy.

This is an income pyramid which tries to approximate income by household. Obviously the higher you go on the pyramid the less people earn that type of money. It's likely not accurate in exact terms of population and percentage of income but it does the job of illustrating my point.

We've been in a recession now for close to two years. It feels to me like nationally we've spent the past six months bottoming out. Obviously certain regions are now doing better than others. I think here in Chicago for example we are just now entering the bottoming process. A client of mine that lives in Southern California says they are nowhere near the end. Florida in February felt better to me than a year ago.

What I've tried to show above is that I think that the farther up you go on the income scale at this point the better people are beginning to feel. That is if you make $80,000 a year and work for a large company, then I think most of these people are beginning to feel that if they've survived this long then they're probably in the clear as far as massive company lay-offs. Again remember I'm talking in generalities so don't send me the stories of how your Aunt Edna was laid off last week. Lay-offs are still going to occur, especially in the public sector where pressures on governments are going to start forcing cuts. But nationally corporations have probably in general cut about as much as they can. In fact I think hiring by the nation's companies will pick up by mid-summer for people with some level of higher education.

These groups above $50,000 account for something like 75% of all consumer spending. They have been on a buyers strike for over a year. The evidence seems to suggest that they are slowly opening their wallets again. They are not going on an all out spending binge. Most of them can't because they don't have the access to credit like they did 2-3 years ago. But they are spending money, albeit at a much lower pace, than a year ago.

Note that the income pyramid above is meant to represent something like 45% of the work force. While these groups have been hurt during the recession they have not born the brunt in lay-offs. That has happened to people earning less than $50,000 a year which represents a majority of the unskilled labor in the United States. This group has been in an employment depression. This is unlikely to end anytime soon. There is no pent up demand for their services. Very few new jobs are being created for them and they will remain a drag on the economy for years.

Again not meant to be scientific but meant it is my thesis for what is transpiring nationally regarding the economy right now. By-the-way if I'm right about what I'm seeing with consumer spending, then that has positive implications for stocks going forward.