Today’s Headlines: America Gets A Raise

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Today’s Headlines: America Gets A Raise
September 20, 2016

The Fastest Income Growth on Record

America, you need a raise! That statement had been true for years as the country struggled to recover from the Great Recession. Fortunately, according to a recent report from the Census Bureau, America has finally received a broad-based raise.

The report "Income and Poverty in the United States: 2015" highlights the significant economic strides made in 2015. Between 2014 and 2015, inflation-adjusted median household income increased by 5.2% to $56,516, representing the greatest single-year increase ever seen in the nearly 40 years of recordkeeping.

In an even brighter spot, poorer households saw a significant share of the benefits. Inflation-adjusted incomes rose by 7.9% for those in the lowest 10% of incomes and by 6.3% for those in the 20th percentile. Meanwhile, the increase for households in the 90th percentile rose by only 2.9%.

The official poverty rate fell by 1.2 percentage points to reach 13.5% as 3.5 million people rose out of the poverty classification. That is the greatest drop in the poverty rate since the late 1960s.

Does this mean we have finally recovered from the Great Recession? Not completely, but the report indicates we are making great strides in that direction.

The Good News Just Keeps Coming

Bright spots weren’t limited to income and poverty levels. The Census Bureau also reported that only 9.1% of Americans were not covered by health insurance in 2015, a significant drop of 1.3 percentage points over the previous year. Meanwhile, a recent Agriculture Department survey showed improvement on the hunger front, as the number of food-insecure households fell from 14% in 2014 to 12.7% in 2015. That improvement breaks a long period of stagnation in the 14%-15% range, and serves as further evidence that economic recovery has begun to reach lower-income Americans.

While rising wages are a significant part of the recovery, the increase in jobs plays at least as large of a role. Two months of large job growth in June and July (both over 270,000 jobs added after the August revisions) contributed in the median income shift by bringing more people into the workforce, and doing so in a relatively broad fashion.

Only the battered mining sector, which includes oil, gas, and other energy companies, is losing jobs (223,000 over the last two years). However, the mining sector's loss is a gain for most Americans through the oil glut and correspondingly cheap gasoline. That's another key factor putting more money in the pockets of consumers, especially to lower-income Americans who often spend a higher percentage of their income on gas.

In technical economic terms, the Great Recession ended in June 2009, but many Americans did not feel the personal effects of recovery, especially lower-income families. The Census Bureau data suggests that we may be heading toward a tipping point where most Americans personally feel the recovery — as long as the good news can be sustained.

Momentum Is Important

To reach true economic recovery, it’s necessary to keep momentum moving forward on wage growth while keeping inflation in check. The second part seems well under control; inflation continues to stay below the 2% target of the Federal Reserve and is likely to for some time. The first part may be more difficult to sustain.

The Census Report lags nine months behind by the time information is released. Sentier Research tracks income information on a monthly basis and finds that inflation-adjusted median household income shrank slightly during the first half of 2016 (from approximately $57,700 to $57,200 as measured in July 2016 dollars). Meanwhile, information from the Bureau of Labor Statistics (BLS) shows that median weekly earnings increased by 2.9% year over year, a reasonably typical rate of growth in that metric. As is typical these days, future indicators are mixed.

Increasing wages are extremely important for economic recovery because that enables greater consumer spending, which in turn drives approximately 70% of America's economy. Consumer spending has been driving growth in the gross domestic product lately, according to GDP reports from the Bureau of Economic Analysis, by offsetting losses in other economic sectors. Logically, business investment should follow as demand for goods and services stays high. Continued wage increases are necessary for that to occur.

Politics As Usual

In an election year, reports are often touted and/or massaged to meet a particular candidate's needs, and this unusual election year is at least typical in that regard.

The White House and Democrats in general were quick to point out the collective good news as vindication for President Obama's policies and the collective Democratic agenda. Republicans (and other skeptics) point out that while household income made great progress in 2015, median household income still falls 1.6% short of the pre-recession peak at the beginning of 2008 and 2.4% of the overall peak toward the end of the 1990s. In addition, the 2015 poverty rate is still 1% higher than in 2007.

Meanwhile, the health insurance information is positive but not surprising — since health care coverage is now a mandate with penalties applied for failure to comply, health insurance coverage had better go up or something is seriously amiss. The real battle with Obamacare will be the rising premiums and the corresponding rise in subsidies to cover them, which Republicans will claim pushes health care further toward a government wealth redistribution program.

Even so, it is hard to see the report as anything but good news for Democrats and bad news for Republicans. Partisans are going to use the report as proof of their claim, whether that connection makes sense or not. Independent and undecided voters (the coveted key to this election) seem likely to drift toward Democrats based on the report — if the report has any impact on them at all. Given the current correlation between poll numbers and name-calling or tangential nonsense, the Census Bureau report may not be given the true weight that it deserves.

The Takeaway

After years of relatively stagnant growth in household income, the Census Bureau report is a breath of fresh air. Unless you are a presidential candidate [whose name rhymes with "Grump", it's hard to find any bad news. Skeptics are reduced to the "it's okay but it should be better" argument.

Will 2016 finally push us over the top and into what most Americans would call full recovery? Early indications suggest not, given that 2015 is a hard act to follow — especially in the uncertainty of an election year.

The main point is that we must keep trending in the right direction, even if the magnitude of change is smaller. It's time that the emphasis on economic growth moves away from central bank policy and more toward old-fashioned business investment, both public and private. That in turn should keep momentum in the jobs market and pump more money into the economy where it does the most good — in the hands of American consumers.

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Erin | 09.20.16 @ 14:58
I'm glad to hear that things are trending in the right direction, but I don't think most people are actually feeling like they got any kind of an increase. Seems like there is a long way to go yet.
Jane | 09.20.16 @ 15:00
It's great to read food insecure households fell by a good percentage. Let's hope that percentage gets lower next year!
Carla | 09.20.16 @ 15:05
I agree that it is okay but should be better. I hope we continue to improve. I see there were more jobs created but does it match up with the fact that we have more people. It is hard to put a lot of faith in these percentages since it is an election year. Our household income has remained the same for the last few years but I have hopes that will improve.
Chrisitna | 09.20.16 @ 15:59
Nice to see some positive news with regard to income levels, but hope that the trend continues. Things should be better, for sure.
Zanna | 09.20.16 @ 18:12
It's definitely heading in the right direction, but we need to see long term growth. I hope things continue to get better!
Daniel | 09.21.16 @ 14:45
I really is something to see good news on these matters for a change .. all too often things only focus on the negative
$commenter.renderDisplayableName() | 12.04.20 @ 17:10