Household Income Shows Troubling Outcome

Household Income Shows Troubling Outcome

Hold off on the victory dance.

The 2014 “Economic Report of the President” and many media reports indicate that the U.S. economy has finally recovered.  But has it?

One measure of economic health is household income.

Historically, America has prospered, as each generation typically has earned more inflation-adjusted income than the generation that preceded it.  The American Dream is not just to succeed yourself, but to provide your children with a better life.

A better life means more than money, of course, but money enables the next generation to do more, live more comfortably and worry less about making the mortgage payments.  Materialistic though it may be, it’s part of the American Dream.

So it’s alarming to see the drop in income that has taken place since 2007, when the financial crisis began.  Median household income has dropped from $56,000 to $51,017, which is a dip of nearly 10%.

We’ve had dips before, as the chart below shows, particularly during the “stagflation” years of the late ’70s and early ’80s.  But this has been the most dramatic drop in income in recent history.

Household Income

Household Income

When household income shrinks, some in the middle class risk sinking down to the lower class and those on the cusp of becoming middle class no longer are able to achieve that status.  As the lower class grows, government expenditures grow, resulting in higher taxes and even further erosion of discretionary income for those in the middle class.

When income decreases, consumers have less money to spend, so the economy stagnates and businesses grow at a slower rate.

The chart and the U.S. Census Bureau’s records do not yet go beyond 2012, so hopefully some of the lost income is now being recovered, but we won’t know for sure until new numbers are available.

On a positive note, though, the chart shows that income levels may have stopped plummeting.  According to the U.S. Census Bureau, “Real median household income in the United States showed no statistically significant change between the 2011 ACS (American Community Survey) and the 2012 ACS.  The ACS 2011 U.S. median household income was $51,324 and the ACS 2012 U.S. median household income was $51,371.”

Staying even is what passes for progress these days.

Washington’s Income Inequality

Not every American has suffered a decrease in income.  In fact, not every state experienced an income drop.  Among those that did, though, the drop was huge in some cases.

Delaware finished with the highest income drop of any state – a drop of 27%, which brought its average household income down to $48,972.  Mississippi’s drop of 19.9% may not sound as bad, but Mississippi has the lowest income of any state at $36,641.

Massachusetts has fared comparatively well.  Our 6.1% drop, bringing average household income down to $63,656, ranks the commonwealth as having the ninth smallest drop in income.

Which state fared best?  Maryland, which has the highest income of any state at $71,836, had a 1.2% drop.  At the very top of the list, though, is Washington, D.C., which enjoyed its highest level of income ever in 2012 at $65,246.

So is this what President Obama and members of Congress mean when they talk about income inequality?  Maybe members of Congress should be sending part of their pay to Mississippi.

Unemployment Rate Down, Jobless Benefits Up

One reason household income is down, of course, is that a record number of Americans are out of work.  As we’ve previously reported, more than 100 million Americans are not working.

That number appears to be growing, even as the unemployment rate drops, as the number of Americans seeking unemployment benefits jumped to 326,000 last week.  If enough people stop working, someday we can achieve full employment.

The economy gained 288,000 jobs in April, which is the largest gain in two-and-a-half years, but do the math – 326,000 minus 288,000 is a net job loss.

Yet the unemployment rate dropped from 6.7% to 6.3%, because more people stopped looking for work.

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