Real Median Household Income: Momentum In 2016 Continues To Disappoint

| About: ProShares Inflation (RINF)

By Doug Short

The Sentier Research median household income data for October, released this morning, came in at $57,929. The nominal median was up $318 month over month but only $1,287 year over year. In percentages, the October number is up 0.5% MoM and 2.3% YoY. Adjusted for inflation, the latest income was up $108 MoM but only $356 YoY. The real numbers equate to changes of 0.2% MoM and 0.6% YoY.

In real dollar terms, the median annual income is 1.3% lower (-$780) than its interim high in January 2008 but well off its low in August 2011.

Background on Sentier Research

The traditional source of household income data is the Census Bureau, which publishes annual household income data in mid-September for the previous year.

Sentier Research, an organization that focuses on income and demographics, offers a more up-to-date glimpse of household incomes by accessing the Census Bureau data and publishing monthly updates. Sentier Research has now released its most recent update, data through November (available here). The numbers in their report differ from the Census Bureau's in three key respects:

  1. It is a monthly rather than annual series, which gives a more granular view of trends.
  2. Their numbers are more current. The Census Bureau's most recent is the 2015 annual data released in September 2016.
  3. Sentier Research uses the more familiar Consumer Price Index (CPI) for the inflation adjustment. The Census Bureau uses the little-known CPI-U-RS (RS stands for "research series") as the deflator for their annual data. For more on that topic, see this commentary.

Monthly Median Household Income Since 2000

The first chart below is an overlay of the nominal values and real monthly values chained in the dollar value as of the latest month. The red line illustrates the history of nominal median household, and the blue line shows the real (inflation-adjusted value). Callouts show specific nominal and real monthly values for the January 2000 start date and the peak and post-peak troughs.

Click to enlarge

In the latest press release, Sentier Research spokesman Gordon Green summarizes the recent data:

"Median annual household income in 2016 has not been able to maintain the momentum that it achieved during 2015. So far, the median this year has declined by 0.5 percent, from $58,192 in January 2016 to $57,929 in October 2016. We continue to monitor the course of inflation, as this has a significant effect on the trend in real median annual household income. We are now at a point now where median household income is slightly higher than at the beginning of the great recession in December 2007, and 0.6 percent lower than January 2000, the beginning of this statistical series."

As for the data itself, Sentier makes it available in Excel format for a small fee (here). We have used the latest Sentier data to create the charts in this update illustrating the nominal and real income trends during the 21st century.

The blue line in the chart above paints the less optimistic "real" picture. Since we've chained in latest dollar value and the overall time frame has been inflationary, the earlier monthly values are adjusted upward accordingly. In addition to the obvious difference in earlier real values, we can also see that real incomes peaked before the nominal (January of 2008, one month after the recession began, versus July 2008). Also the real post-recession decline bottomed later than the nominal (August 2011 versus September 2010).

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?").

Click to enlarge

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 interim peak (as in money illusion) of 27.2% six months later and the latest at 42%, a record high. The real median household income is now at -0.6% from its turn-of-the-century level. In essence, the real recovery from the trough has been frustratingly slow.

A Closer Look at the Post-Recession Data

Let's take a closer look at the monthly data since the end of the Great Recession. The chart below highlights the real monthly median value percent change since 2007. For the past five months, after five months at a higher level, the real median monthly has essentially stalled.

Click to enlarge

As the excellent data from Sentier Research makes clear, the mainstream U.S. household was struggling before the Great Recession. At this point, real household incomes are about where they were during the middle of the Great Recession.

We'll close this update with another look at real growth since the turn of the century, highlighting the actual monthly data points and adding a three-month moving average. The MA trend has been slowly zigzagging higher since the trough in 2011, but as we can clearly see, the momentum of 2015 has disappeared thus far in 2016.

The latest monthly data point is 0.6% below the January 2000 level. The 3-month moving average is 0.8% below the January 2000 benchmark.

Click to enlarge

Check back next month for another update.

Note: For more information on the Census Bureau's Current Population Survey (CPS), visit the CPS Frequently Asked Questions page. A common question is what qualifies as income in CPS household survey. The CPS definitions page lists the following:

  • Earnings
  • Unemployment compensation
  • Workers' compensation
  • Social security
  • Supplemental security income
  • Public assistance
  • Veterans' payments
  • Survivor benefits
  • Disability benefits
  • Pension or retirement income
  • Interest
  • Dividends
  • Rents, royalties, and estates and trusts
  • Educational assistance
  • Alimony
  • Child support
  • Financial assistance from outside of the household
  • Other income