Economics & Country Risk Blog

US household income maintained forward momentum in 2016




It was a long, hard slog, but in 2016, real (inflation-adjusted) median income for US households finally surpassed its 2007 level after two consecutive years of strong (and statistically significant) growth. With a 3.2% increase adding on to the previous year's 5.2%, US real median household income reached $59,039 in 2016, according to the Commerce Department - enough to edge out not just its pre-recession (2007) level, but also the previous high point of $58,665, which was achieved in 1999. Mean household income, which weights upper-income households relatively more than the median, had already achieved the milestone of passing its pre-recession peak in 2015.

The years 2015 and 2016 have been a turning point for US household incomes, as increasingly robust employment and wage gains, combined with continued modest consumer price inflation, have enhanced the wellbeing of many American households. While the size of the increases in real median income in 2015 and 2016 are remarkable, so was the length of the stagnation that preceded them. Although things have started to improve, it took nine years for real median household income to dig out of the ditch triggered by the Great Recession, during which time many middle-class families were forced into a lower standard of living.

 

 

 

The recession was particularly brutal for lower-income families, and even now, the differential scale of the recovery on households across the income distribution is stark. The recovery has been much slower for those in lower income brackets. While the average income of households in the highest quintile surpassed its 2008 level in 2013, it took two more years for this recovery to filter down to households in the second- and third-lowest quintiles. Meanwhile, the bottom-most quintile still has yet to fully recover all of the lost ground.

Still, the improvements in real median income have been instrumental in lifting more Americans out of poverty. In 2016, the official poverty rate - the proportion of Americans beneath the poverty line - declined by 0.8 percentage point to 12.7%. Adding on to 2015's 1.3-point decrease, this has brought the poverty rate within 0.2 point of (and not statistically different from) the 12.5% level seen in 2007, the last full year before the recession.

Looking ahead, we expect median household income to make further gains in 2017 and 2018, and the poverty rate to keep sliding down. This will assist in restoring some balance and uniformity to consumer spending patterns.

Chris G. Christopher, Jr. is the Executive Director of US Macro, Global Economics, and Consumer Markets for IHS Markit.
Posted 13 September 2017

About The Author

Executive Director of US Macro, Global Economics, and Consumer Markets

Dr. Chris G. Christopher, Jr. is Executive Director in the US Macro, Global Economics, and Consumer Economics for IHS Markit. He brings over 25 years of experience as an economist, academic, forecaster, and  demographer. Prior to joining IHS, Christopher worked for FedEx Services in the forecasting department and as the Chief Econometrician for OIT. In addition, he worked as a research economist at Regional Economic Models, Inc. (REMI); the New York State Legislative Tax Study Commission; and as an associate professor, administrator, and university lecturer in econometrics, economics, and business. Christopher holds a Bachelor of Arts in economics and political science, Master of Arts in economics, Master of Arts in mathematics, Doctorate of Philosophy in economics from the University at Albany. Dr. Christopher has taught graduate and undergraduate courses at various business schools and economics departments.

Dr. Christopher writes a quarterly column for CSCMP’s Supply Chain Quarterly, has several academic publications, and writes perspective pieces for the mass media. He is a member of the Econometric Society, American Economic Association, and National Association of Business Economists (NABE). Chris is on the board of economic advisors for the New York State Assembly, and a member of the NABE Travel & Transportation Roundtable. In addition, Chris is a NABE Certified Business Economist (CBE), and Consensus Economics 2013 forecast accuracy award winner (US GDP & CPI).