from Sentier Research
According to new data derived from the monthly Current Population Survey (CPS), median annual household income in August 2013 was $52,236, not statistically different than the July 2013 median of $52,160.
Real median annual household income has recovered from its low point of $50,849 in August 2011, but since December 2011 income changes have presented no clear trend. Median income decreased by 1.7 percent between December 2011 ($52,183) and January 2012 ($51,301). The median gradually increased by 1.5 percent between January 2012 and May 2012. This was followed by a period from May 2012 to January 2013 in which none of the month-to-month changes in median income were statistically significant. There was a decline in median income of 1.1 percent between January 2013 and February 2013, which was the first significant decline since the change recorded between December 2011 and January 2012.
There were no significant month-to-month changes in median income between February 2013 and May 2013. Median income increased by 0.7 percent between May 2013 and June 2013, which marked the first statistically significant increase in the median in well over a year. With no significant change in the median for July 2013, and now no significant change for August 2013, we are in a situation where real median annual household income is just maintaining its present level. Thus, a comparison of the median in December 2011 ($52,183) with August 2013 ($52,236) indicates a period of income stagnation. (See Figure 1.)
By definition, changes in consumer prices have a direct effect on the measured level of real median annual household income. Monthly variations in the CPI in recent times have been driven mainly by changes in energy prices, which have been volatile. From December 2011 to January 2012, when the median declined by 1.7 percent, the CPI increased by 0.2 percent. From January 2012 to May 2012, when median income increased by 1.5 percent, the CPI increased by 0.5 percent. From May 2012 to January 2013, when median income stagnated, the CPI increased by 1.1 percent. From January 2013 and February 2013, when the median declined by 1.1 percent, the CPI increased by 0.7 percent. From February 2013 to May 2013, when there were no statistically significant changes in median income, the CPI declined by 0.4 percent. From May 2013 to June 2013, when the median increased by 0.7 percent, the CPI increased by 0.5 percent. For the past two months, July 2013 and August 2013, in which the median did not change significantly, the CPI has increased by only 0.2 percent and 0.1 percent, respectively, from the prior month.
Real median annual household income in August 2013 can be put into broader perspective by comparisons with previous levels of household income dating back to the start of the last decade. The August 2013 median income of $52,236 was 4.4 percent lower than the median of $54,614 in June 2009, the end of the recent recession and beginning of the “economic recovery.” Since the recession ended the headwind created by increasing consumer prices was 8.7 percent, thus median household income would have needed to increase at that rate just to break even. The August 2013 median was 6.1 percent lower than the median of $55,618 in December 2007, the beginning month of the recession that occurred more than five years ago. And the August 2013 median was 7.2 percent lower than the median of $56,283 in January 2000, the beginning of this statistical series. These comparisons demonstrate how significantly real median annual household income has fallen over the past decade, and how much ground needs to be recovered to return to a median income level that existed more than ten years ago.
- The August reading on the labor market from the U.S. Bureau of Labor Statistics indicates a mixed situation compared to July. The official unemployment rate in August 2013 was 7.3 percent, not significantly different from the 7.4 percent rate in July 2013. The median duration of unemployment increased significantly, from 15.7 weeks in July 2013 to 16.4 weeks in August 2013. The broader measure of employment hardship, which includes the unemployed, marginally attached workers (of which discouraged workers are a subset), and persons working part-time for economic reasons declined from 14.0 percent in July 2013 to 13.7 percent in August 2013.
- If we focus on the longer time period during which household income stagnated, from December 2011 to August 2013, the labor market trends show a definite improvement. The official unemployment rate declined from 8.5 percent in December 2011 to 7.3 percent in August 2013. The median duration of unemployment declined from 21.0 weeks in December 2011 to 16.4 weeks in August 2013. And the broader measure of employment hardship, which includes the unemployed, marginally attached workers (of which discouraged workers are a subset), and persons working part-time for economic reasons declined from 15.2 percent in December 2011 to 13.7 percent in August 2013.
- The failure of an improved labor market to translate into higher levels of household income raises some troubling questions. What types of jobs were created over past 21 months, starting from December 2011, and what levels of pay did they generate? What happened to people who dropped out of the labor force altogether, and how did this experience affect their household income levels? Although these questions are not the focus of the present report, they deserve much additional attention from labor economists.
- The Household Income Index (HII) shows the value of real median annual household income in any given month as a percent of the base value at the beginning of the last decade (January 2000 = 100.0 percent). The HII for August 2013 stood at 92.8 compared to 98.8 in December 2007, when the “great recession” began, and 97.0 in June 2009, when the “economic recovery” subsequently began. The HII in December 2011 was 92.7, about the same level as in August 2013, which is why we designate this time period as one of income stagnation. Prior to December 2011, the HII had increased steadily from August 2011 (the low point): 90.3 in August, 91.0 in September, 91.6 in October, 91.8 in November, and 92.7 in December.
- Three employment hardship measures—the unemployment rate, the median duration of unemployment, and a broad measure of employment hardship that groups the unemployed, marginally attached workers, and part-time workers who want full-time work—are contrasted against the HII in Figures 1, 2, and 3 below, respectively, at the back of this report. In the discussion that follows, we highlight trends in these three employment hardship measures for five important time periods: January 2000 (the beginning of our household income statistical series), December 2007 (the beginning of the great recession), June 2009 (the beginning of the economic recovery), August 2011 (when the HII reached its lowest level), and August 2013 (the latest reading).
- Other economic factors, such as changes in average hourly earnings and average hours worked per week, have also had an effect on household income levels. At the start of the recession in December 2007, the average hourly earnings (expressed in August 2013 dollars) for all private employees were $23.47 per hour. After taking inflation into account during the recession and the economic recovery, average hourly earnings increased to $24.05 by August 2013. The average number of hours worked per week for all private employees was 34.6 hours in December 2007, falling to a low of 33.8 hours in June 2009, and then rebounding to 34.5 hours by August 2013 (all figures are seasonally adjusted from the U.S. Bureau of Labor Statistics based on the Current Employment Statistics survey).
Tax money income and have been adjusted for inflation; income amounts are expressed in August 2013 dollars and have been seasonally adjusted, unless otherwise noted.
This report on median household income for August 2013 is based on data derived from the monthly Current Population Survey (CPS), the source of the nation’s official statistics on employment and unemployment. It does not contain any information on the characteristics of households. Readers who are interested in income changes by detailed household characteristics should consult our recent report, “Household Income on the Fourth Anniversary of the Economic Recovery: June 2009 to June 2013,” available on our website (www.sentierresearch.com).
The estimates in this report are based on the Current Population Survey (CPS), the monthly household survey that provides official estimates of the unemployment rate. The CPS samples approximately 50,000 households and 135,000 household members each month. As is the case with all surveys, the estimates are subject to sampling and nonsampling errors. All comparisons made in the report have been tested and found to be statistically significant at the 90-percent confidence level, unless otherwise noted.
Household income is defined as the sum of the incomes of all household members. Income refers to all sources of money income including earnings from work, Social Security, interest, dividends, cash welfare, retirement pensions, unemployment compensation, veterans’ benefits, etc. Income excludes capital gains and losses, and lump-sum, one-time amounts. Household income is measured before the payment of federal and state income taxes and Social Security payroll taxes.
source: Household Income Trends: August 2013 (12 pages as .pdf)- an Excel spreadsheet containing the plotting points for all of the time series charts is available for purchase.