U.S. Household Income: An Against-Trend Improvement!

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You saw the headlines last week in the wake of the Census Bureau releasing 2015 income numbers: "US household incomes are finally increasing"! And what an increase it was:

  • A 5.209% increase in median household incomes, from $53,718 to $56,516

  • A 4.534% increase in average household incomes, from $75,825 to $79,263

Those are encouraging numbers (and yes, numbers which are already adjusted for inflation). Median family income was the fourth highest since 1967, only trailing the bubbly years of 2007, 2000, and 1999. Average family income was the highest of all time.

Of course, here at DQYDJ we're more interested in the data behind the data. After a quick glance, let it be known: adjusted for the trends in household size, these numbers are even better than they first appeared.

The Number of People Per Household

Last week, the Census Bureau also posted some easy to access numbers on various household characteristics. The key takeaway for this article: In 1960, the average household size in the United States was 3.33 people.

Nowadays? We are down to 2.54 people per household in 2015.

How Would Changing Household Sizes Affect the Data?

Since household sizes have been decreasing in the last 50 years, fewer people are earning more money.

While your mind may automatically turn to fewer households with children, this may reflect a number of things:

  1. Ages when people first form new households (something we've covered recently!)

  2. How many children couples are having

  3. Generations living together in a house

  4. The number of single person households

  5. … All of the other scenarios you can imagine

One thing we can say without looking into the data (and we can't, at least not yet - we will be doing our customary deep dive when IPUMS releases their harmonized data set) is that the larger incomes are supporting less people. Whether that means households are dropping an income earner or are just separating earlier, it still means that one thing: the monetary resources supporting each household member have increased.

How Has That Shown Up in the Data?

We present here a transform for both data sets - Median income and Average income for American households, adjusted by the reported number of members per households. We're using household size in 2015 as the base case.

Click to enlargeAfter Adjustment - Even Better Household Income News!

(Yes, adjusting median income this way is nonsense… but for directional purposes please humor us! Average income is still valid. Also note the CPS question changes in 2014 for the 2013 data.)

The Data Behind the Data

Yes, it would have been nice to finally break some of the household income 'records' set during the bubbly years. The stats do reflect what you're probably thinking: 2007, 1999, and 2000 were really great years for household income.

Here is what I mean by that:

Click to enlargeUnadjusted Household Average and Median Income, Through 2015

When viewed through the lens of changing demographics, only 2007 had a higher adjusted median household income.

While adjusting median incomes is dubious, the adjusted data does capture a generational change in household size. While incomes may at first appear 'stagnant', there are many demographic changes happening below the surface which make this household income news even better than it first appeared.

Are you even more impressed with the household income numbers after this adjustment? What's driving the household size trend? How will Millennial living arrangements affect this measure going forward?