Last month I posted a pair of commentaries on median household incomes based on latest annual data released by the Census Bureau. The first looked at the distribution of household incomes by quintile and the top 5 percent. The second examined median household incomes by age bracket.
More recently, Sentier Research, an organization that focuses on income and demographics, published a fascinating report on median household incomes (available here as a PDF file). The data in their report differs from the Census Bureau's data in three key respects:
- It is a monthly rather than annual series, which gives a more detailed view of trends.
- Their numbers are more current, the latest through August 2012. In September the Census Bureau released the 2011 annual numbers (going on nine months into the next year).
- Sentier Research uses the more familiar Consumer Price Index (NYSEARCA: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. (I'll have more to say about this point in a separate commentary.)
The company makes the data available in Excel format for a small fee (here). I have used that data to create a pair of charts to illustrate the nominal and real income trends during the 21st century.
We'll look at the charts, but first, a word about inflation adjustment. The Sentier Research report includes charts showing real (inflation-adjusted) median household income with their own Household Income Index (HHI), in which January 2000 = 100.0. As of August 2012, the index registered 91.0, a nine percent decline from January 2000. The advantage to this approach is that it highlights the real trend itself without a potentially distracting reference to dollar values.
Also, if you chart using dollar values, you have to decide on a point in time at which the nominal and real dollars match and then use the deflator (in this case the CPI) to "chain" the real and nominal values at that point.
The first chart below chains the nominal values and real monthly values in August 2012 dollars. The red line illustrates the history of nominal median household income in current dollars (current for the designated month). I've added callouts to show the current monthly values for the start, most recent, peak and post-peak trough.
The blue line in the chart above paints the grim "real" picture. Since we've chained in August 2012 dollars and the timeframe 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 my preferred way to show the nominal and real household income -- the percent change over time. Essentially I have taken the monthly series for both the nominal and real household incomes and divided them by their respective values in January 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 stunning 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 peaked at a fractional 0.8% in early 2008, far below the nominal illusionary peak (as in money illusion) of 27.5% six months later. Also the real recovery from the trough has been depressingly slight. In fact, the trend since the post-trough interim peak in December 2011 has been one of decline.
In Summary ...
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 in significantly worse shape than they were over three years ago when the recession ended.
The sorry state of median household incomes was no doubt an "elephant in the room" at the outset of last night's first of the three 2012 presidential debates. And please note -- the metaphorical elephant I'm referring to is definitely not the Republican mascot.