Time once again to look at one marker of economic well-being via the metric of Real Median Household Income (RMHI)—“real” meaning adjusted for inflation via the Consumer Price Index.
Each month, Doug Short creates RMHI charts like the one above based on the work of Sentier Research. The Census Bureau publishes annual information on this in September each year, but Sentier accesses ongoing Census data on a monthly basis.
For January, RHMI came in at $57,288. That’s up $115 month over month and $2,191 year over year. This amounts to a 4.0 percent increase from January of 2015. Median annual household income is now 0.9 percent lower (-$509) than in January 2008, at the beginning of the Great Recession. It fell to its lowest point in August 2011.
Lower energy prices have in the past 16 months contributed substantially to this improvement, giving households more real income as oil prices have plummeted, and along with it, the price of gasoline and diesel.
Short writes:
The next chart is our preferred way to show the nominal and real household income — the percent change over time. Essentially we have taken the monthly series for both the nominal and real household incomes and divided them by their respective values at the beginning of 2000. The advantage to this approach is that it clearly quantifies the changes in both series and avoids a common distraction of using dollar amounts ("How does my household stack up?").
The reality illustrated here is that the real median household income series spent most of the first nine years of the 21st century struggling slightly below its purchasing power at the turn of the century. Real incomes (the blue line) hit an interim peak at a fractional 0.7% in early 2008, far below the nominal illusionary peak (as in money illusion) of 27.2% six months later and the latest record high of 40.4%. The real median household income is now at -0.2%. In essence, the real recovery from the trough has been frustratingly slow.
Horribly slow might be a better description of the impact.
The slowness is combined with another measure of how the middle class has been losing ground economically, according to the Pew Research Center.
Since 1970, the middle class has gone from a 62 percent share of the nation’s income to just 43 percent. Meanwhile, the upper class has risen from a 29 percent share to a 49 percent share. The lower class has slipped from a 10 percent share to a 9 percent share. In 2015, according to Pew, 20 percent of American adults were in the lowest-income tier, up from 16 percent in 1971. At the same time, 9 percent are in the highest-income tier compared with 4 percent in 1971. The shares of adults in the lower-middle or upper-middle income tiers were scarcely changed.
Meanwhile, Elise Gould at the Economic Policy Institute wrote earlier this month about how wage inequality continued its 35-year rise in 2015:
- While real hourly wages (i.e., wages adjusted for inflation) grew across the board in 2015, this is largely due to a sharp dip in inflation; growth in nominal wages (i.e., wages unadjusted for inflation) has not accelerated. This dip in inflation is unlikely to be a durable source of future real wage gains.
- Nominal wage growth of 2.2 percent remains below a level where workers would reap the benefits of economic growth.
- There is no evidence of substantial acceleration of wages that would signal that the Federal Reserve Board should worry about incipient inflation and raise interest rates in an effort to slow the economy.
- Real hourly wage growth in 2015 was fastest at the top of the wage distribution, illustrating that wage inequality continued its 35-year rise last year.
- The gap between the middle and bottom has remained stable since 2000.
- The gap between the top and everyone else has grown.