News & Research

Economics

This page contains information on the postal sector and the broader economy. It includes both NALC Research blog posts and links to posts created by other organizations that may be useful to letter carriers in their advocacy efforts.

Economics Blog

What’s in a name? Controllable income is operating profit

In the third quarter of this year, the Postal Service decided to change the name of a key line in its quarterly results slide presentation. It changed the name of a line that was previously called “Operating Income/(Loss)” to “Controllable Income/(Loss).”

This line item is important because it shows what is actually going on in the Postal Service’s mail business. It excludes factors that are not part of core mailing business, such as the retiree health benefits pre-funding schedule and the impact of market interest rates on workers’ compensation projections. This line item allows observers to see the progress of the Postal Service business each period (quarterly or annually) using an apples-to-apples comparison with the prior period. It is, as USPS itself says in financial reports, the most meaningful indicator of business performance.

The Postal Service has referred to this line item for years as “Operating Income/(Loss).” “Operating Income/(Loss)” is synonymous with “Operating Profit/(Loss).” It reflects the earning power of a business. The Postal Service’s “Operating Income/(Loss)” line references can be seen in its most recent Integrated Financial Plan (the 2014 business plan) and in results presentations for the first quarter and second quarter of 2014.

Although, for still-difficult-to-understand reasons USPS decided to change the description of this line in its most recent presentation to the media, it is important to know that this line means the exact same thing—the Postal Service is operationally profitable in 2014. Through the first nine months of 2014, USPS had a $1 billion operating profit. The Postal Service’s financial performance clearly is getting better, not worse, no matter how the line item is labeled.

While USPS has consistently shown operating results excluding retiree health benefits pre-funding and/or workers’ compensation accounting adjustments in official financial statements (for example, see page 19 of this quarterly results report), it has only sporadically identified these items in press releases. For example, in a May 2012 press release, the Postal Service clearly explained how its operating results looked without the impact of retiree health benefits pre-funding and workers’ comp accounting, and it included a table that reconciled its net results with its operating results. In a November 2010 results press release, USPS noted the impact of workers’ compensation accounting adjustments on its bottom line (for more on the subject of workers’ comp accounting expenses see blog post, “The cause of a $1.6 billion swing”). More often than not, however, the Postal Service’s press releases have concentrated almost entirely on the “Net Income/(Loss)” line, leaving people in the dark about what is really going on with the Postal Service. Simply by looking at its press releases, it has been difficult for outside observers of USPS to understand how its core mail business performs from quarter to quarter or year to year.

Did declining mail cause net losses in a particular quarter or did retiree health benefits pre-funding and workers’ compensation accounting cause them? Major policy decisions hinge on a clear understanding about the Postal Service’s results, which is why it is so important for USPS to more fully explain the difference between net results and the more important operating results.

Impact of a stalled minimum wage

The Economic Policy Institute has released a new report on the minimum wage. One of EPI’s charts really shows the impact of a stalled minimum wage.

Every year that the minimum wage is not raised, inflation slowly erodes the minimum wage’s real (i.e., inflation-adjusted) value, meaning that minimum-wage workers cannot afford to buy as much as they could in previous years.

As shown in Figure A, the current minimum wage of $7.25 is worth roughly 25 percent less than the minimum wage in 1968, when it equaled $9.58 in today’s dollars.

Resources for USPS data

Oct. 20, 2014: Recently, a good question came up at the NALC Leadership Academy about where to find data on the Postal Service. For those who are interested, a lot of information can be found on the websites of the following organizations: the USPS, the Postal Regulatory Commission (PRC), and the USPS Office of Inspector General.

Specifically, the USPS website is where the Postal Service publishes many of its financial reports. A few good reports include:

The Postal Regulatory Commission website is where the preliminary monthly financial results reports are published. These are good reports that provide information on the Postal Service’s performance during the most recent month, and break out the “Controllable Operating Income/(Loss)” from the non-operational items. They are usually published toward the end of the month for the prior month’s results. Look for reports titled “USPS Preliminary Financial Information.” For example, here is a link to the August 2014 report (11 months of 2014). If you like, you can sign-up to get alerts for when new PRC reports are published.

The USPS Office of Inspector General website has reports on a wide variety of postal subjects. For example, if you wanted to find the OIG’s report on non-bank financial services, you could find it on this website. Here is the link to this report. Like the PRC website, the USPS OIG website lets you sign-up for alerts about new reports.

There are plenty of other great sources of information about the Postal Service, including postal-specific news websites and blogs. The sites above just reflect a few of the major official sources of data and financial information about the Postal Service.

Comment on post office relocations

Oct. 15, 2014: This week, the USPS Office of Inspector General put out a request for public comments about post office relocations.

Has your community experienced Postal Service closures, relocations or reduced hours? Click here to find out more and for instructions on how to comment.

Raise the Floor Wisconsin (Minimum Wage Edition)

Oct. 9, 2014: The Center on Wisconsin Strategy and the Economic Policy Institute published a report today advocating increasing the minimum wage. According to their research, one in four Wisconsin workers works in a job that pays poverty-level wages. It’s an interesting report with some good analysis on wages. Check it out if you have a chance.

The cause of a $1.6 billion swing

Oct. 3, 2014 — In mid-November the Postal Service will announce its full-year Fiscal 2014 financial results. At of the end of August 2014, it had a $1.3 billion operating profit, so the 2014 full-year operating results are on track to be very good.

However, the bottom-line net income will include a $5.7 billion expense for retiree health benefits (RHB) pre-funding, which it has to report in the net income line even when it isn’t paid. The net income line will also include a large workers’ compensation accounting adjustment—an additional negative impact of $1 billion or more this year, due to falling interest rates. Neither of these expenses reflects anything about Postal Service business operations during the year, and so each should be excluded when evaluating annual business results or when comparing year-to-year results.

We’ve said a lot about pre-funding in the past, but you might be curious about the workers’ compensation expense. Two parts comprise this expense: an annual “cash” expense, which reflects the actual cost of workers’ compensation claims during the year, and a workers’ compensation accounting adjustment, which simply reflects changes in the Postal Service’s long-term workers’ compensation liability estimate.

The second part of this expense, the workers’ compensation accounting adjustment, is purely an on-paper accounting adjustment. When the Postal Service increases its long-term workers’ compensation liability estimate on its balance sheet, it has to reflect a related “expense” in its current year income statement. (The income statement is the financial document that the Postal Service refers to when reporting its annual results.) This particular income statement “expense” does not reflect any cash payments or charges that the Postal Service paid during the year. It is simply a mechanical result of the Postal Service’s increasing or decreasing of its long-term workers’ compensation liability estimate on its balance sheet.

Each quarter, the Postal Service plugs new interest rates into its workers’ compensation accounting model to reflect the ups and downs of market interest rates. These plug-ins move the balance sheet liability estimate either up or down. Changes in the balance sheet liability estimate translate into a corresponding income statement expense.

Unlike the relatively steady workers’ compensation cash payments each year (payments for workers’ compensation claims), the long-term workers’ compensation liability is very volatile and goes up or down every quarter based on changes in discount rates (that is, interest rates) during the year. As the Postal Service explained in its 2013 financial statements, “An increase of 1% in the discount rate would decrease the September 30, 2013 liability and 2013 expense by approximately $1.7 billion. A decrease of 1% in the discount rate would increase the September 30, 2013 liability and 2013 expense by approximately $2.1 billion.” So, these discount rate changes can really have an impact on the bottom line, even though they don’t reflect anything about the Postal Service’s business performance or even the changes in the number of people receiving workers’ compensation.

This year so far, the Postal Service has projected that it will have a more than $1.3 billion expense related solely to workers’ compensation accounting adjustments. Last year, conversely, the workers’ compensation accounting adjustment actually added $300 million to the bottom line due to rising interest rates. The cause of this $1.6 billion swing? During FY2013, market interest rates rose. During FY2014, market interest rates fell. To get a better idea of how interest rates changed in FY2013 and FY2014, and how these movements resulted in workers’ compensation accounting adjustments, take a look at the following chart. We do not know exactly which interest rates the Postal Service uses in its model, but U.S. Treasury rates provide a good indication about the overall direction of U.S. interest rates.


Boost or Bust: Jobs and Places

Oct. 2, 2014: This "Simply-Put" video provides a brief illustration of how to make the core points emerging from Topos research on communicating job quality.


August was another good month for the Postal Service

Sept 25, 2014: The PRC just posted the Postal Service’s monthly results for August 2014, and the year to date results through August. This is the last results report we will see before the Postal Service announces their full-year results around mid-November.

August was another good month. Excluding the $475 million RHB prefunding expense and a $502 million expense for workers’ comp accounting adjustments (falling interest rates have caused negative workers’ comp adjustments this year), the Postal Service had a $266 million operating profit in August.

This compares to a $261 million operating loss in August 2013 – meaning there was a $527 million positive swing for this August compared to last August.

For the year to date, the Postal Service now has a $1.316 billion operating profit. This is higher than the $1.1 billion the Postal Service forecast for 2014 and bodes well for their full year results.

Stay tuned to this station for a full recap in mid-November.

A link to the August 2014 report can be found here.

New Minimum Wage Map from Oxfam America

July 1, 2014: According to a new interactive map produced by Oxfam America, more than 25 million American workers would benefit from an increase in the minimum wage to $10.10. You can click on the map for details by state and congressional district, or type your ZIP code, to find out how things look in your congressional district. Check it out!

Minimum wage map

Credit: Oxfam America

April 2014 Results: $1.353 billion YTD Operating Income

May 23, 2014: The Postal Service’s April 2014 preliminary results were posted on the PRC website today

Through April 2014, the Postal Service has reported $1.353 billion in operating income (see pg. 1, line “Controllable Operating Income”). This compares to a $131 million operating loss for the same period last year.