Median Household Income Surged 5.2% In 2015 – Really? by Gary D. Halbert
FORECASTS & TRENDS E-LETTER
by Gary D. Halbert
September 20, 2016
- Household Incomes Surged 5.2% in 2015, Largest Rise Ever
- All Races & Age Groups Saw Their Income Go Up in 2015
- If the Numbers Sound Too Good to be True, Maybe They Are
- US Poverty Rate Fell to 13.5% in 2015, Now 43 Million People
- Official Poverty Rate Doesn’t Include All Government Benefits
Today we’ll tackle last week’s annual report from the US Census Bureau on household income and the poverty rate in America in 2015. The report showed the largest annual jump in household income on record in 2015. The question is, was the big increase in household income due to a stronger economy, or was it due to the Census Bureau making changes to its methodology? I’ll give you the answer below.
Last week’s report also showed that the official poverty rate declined for all age groups and races last year. That’s certainly good news. But what we also learned is that if the Census Bureau calculated its poverty rate like most other developed nations, our poverty rate would be a fraction of the level reported last week. I’ll bet not one American out of 100 knows about this. I’ll explain it as we go along today.
Household Incomes Surged 5.2% in 2015, Largest Rise Ever
A surge in US incomes last year delivered the first significant raise for the typical family after seven years of stagnant or declining earnings – the result of sustained job growth finally lifting a broad swath of American households.
The median household income – the level at which half of households are above and half are below – rose 5.2% in 2015, or by $2,798 from a year earlier to $56,516, after adjusting for inflation, the Census Bureau reported last week.
The increase was the largest annual gain recorded since the yearly survey of incomes began in 1967, though it didn’t fully close the gap left by the last two recessions. Median household income stood 1.6% shy of the 2007 pre-recession level ($57,423) and 2.4% below the all-time high reached in 1999 ($57,909).
Median Household Income
“This is a big deal,” President Obama boasted last Tuesday at a rally for Hillary Clinton in Philadelphia. “Across every age, every race in America, incomes rose and the poverty rate fell. In fact, the typical household income of Americans rose by $2,800, which is the single biggest one-year increase on record,” he said.
Behind the pay hike is the big increase in employment, Census officials said. Some 3.3 million more Americans were working full-time, year-round in 2015, thus pushing up median income. Longer hours, higher wages and lower inflation also have contributed to the improvement.
One question now is whether a sustained upturn is under way, or whether these gains are likely to flatten as the economy nears full employment, especially given the continuing slide in worker productivity. At the current pace, median household income could surpass its 2007 level next year, ending a lost decade for many workers – if the latest figures are accurate.
All Races & Age Groups Saw Their Income Go Up in 2015
Here’s a breakdown of median incomes by race. Asian household incomes were the highest at $77,166; white household incomes rose 4.4% to $62,950; Hispanic incomes rose 6.1% to $45,148; and black incomes rose 4.1% to $36,898.
By age, households of those ages 45-54 had the highest median income at $73,857, up 4.2%; but households run by those ages 35-44 saw the biggest jump, up 7% to $71,417. And by gender, overall, men working full-time made more than women, but women saw a slightly larger increase in 2015.
The fact that median income was higher before the recession than today suggests that the recovery remains “somewhat slow and sluggish,” said Aparna Mathur, an economist with the American Enterprise Institute. There continues to be “slack” in the economy “with a large number of workers who are long-term unemployed or in involuntary part-time jobs. When this slack in the labor market diminishes over time, more households will see rising incomes, higher than before the recession.”
If the Numbers Sound Too Good to be True, Maybe They Are
Last week’s annual report on US household income came as a major surprise to many economists and forecasters, yours truly included. There is little evidence in the economic reports we see month-in and month-out to suggest a rise in incomes of 5.2% last year.
Upon seeing such a surprise report, some observers alleged that the government must have “cooked the books” or intentionally fabricated the results – especially with this being an election year when a stronger economy favors the candidate of the incumbent party.
Yet when I see a surprise of this magnitude, I investigate to see if there was some significant change in the survey and/or the way the results were calculated. Sure enough, there were significant changes to both starting in 2013 and ending in 2014, which almost certainly explain why we saw such a big surprise in 2015 household income last week. Let me explain.
The annual income and poverty report from the government’s Census Bureau is drawn from a yearly survey which asks detailed questions about annual incomes – including wages, dividends, child support payments and government benefits. The survey, conducted in March with results released in September, is sent to around 95,000 households that are representative of the US population.
In 2013, the Census Bureau started to materially change the questions asked in the survey. In 2014, it also changed the methods used in calculating annual household incomes. The government began to ask more questions about how household income is generated. It also added more detailed answer options for survey questions in an effort to reduce “Don’t Know” responses.
There were other changes implemented in 2013 and 2014, but these two alone could have resulted in a considerably higher than expected increase in median household income in 2015. The Census Bureau actually admits as much in the footnotes to its latest report, saying: “The data for 2013 and beyond reflect the implementation of the redesigned income questions.”
The bottom line is that the Census Bureau moved the goalposts, and it resulted in the largest annual increase in history for median household income. Was it done for political reasons in a critical election year? Maybe, maybe not. We’ll never know.
Just remember, you read it here first.
US Poverty Rate Fell to 13.5% in 2015, Now 43 Million People
The same Census Bureau report that told us median household income rose by 5.2% last year also noted that the official US poverty rate fell to 13.5% in 2015, down from 14.8% in 2014. The report said there were 43.1 million people living in poverty last year, 3.5 million less than in 2014.
The reported US poverty rate for 2015 was the lowest since 2008 when it was 13.2%. The last time the poverty rate went down more than a percentage point, as it did last year, was in the late 1960s. All age groups – children, adults and senior citizens – saw their percentage drop.