The Middle Class Is Not Buying Talk About Good Times: And They Have a Very Good Reason

Recent reports suggest that something of a financial rebound is under way. Job growth is more robust, 'average' net worth is recovering and one can almost hear strains of the band striking up 'Happy Days Are Here Again.'

Except, of course, that in the rush - once again - to parse the big data and leave the details to The Little People, those averages, when deconstructed, tell a very different story.

The reality appears to be that those who maintained the wherewithal to continue investing in securities, especially stocks, have seen their incomes and household net worth rise. But that effect seems to have impacted a very small slice of the demographic pie; and it happens to correspond with the very limited group who never suffered (much, in relative terms) during the financial crisis.

In other words, the rich got richer because they could afford to assume economic risks that most could not.And, to paraphrase the ad, for everyone else there's uncertainty.

The data, as the following article explains, shows that the putative middle class remains worse off than they did before the crisis and recession. And this at a time when growing global demand has caused inflationary pressure on a range of household necessities. The reality is that just as opportunity and performance remain unevenly distributed across the population, so, too, does perception. JL

Neil Irwin reports in the New York Times:

Middle-class American families’ income is lower now, when adjusted for inflation, than when the recovery began half a decade ago.

For five years, the United States economy has been expanding at a steady clip, the stock market soaring, the headlines filled with talk of recovery. Yet public opinion polling shows most Americans still think the economy is pretty miserable.

What might account for the paradox? New data from a research firm offers a simple, frustrating answer: Middle-class American families’ income is lower now, when adjusted for inflation, than when the recovery began half a decade ago.

Sentier Research, a firm led by former census officials, used census data to tabulate an estimate of the median household income — how much is earned by families at the exact middle of the nation’s income distribution. In June 2014, it found in a report issued Wednesday, the median household income was $53,891, down from $55,589 in inflation-adjusted dollars when the economic expansion began in June 2009.

The economic paradox isn’t much of a paradox at all in this light: The purchasing power of the typical American family is 3.1 percent lower now than it was five years ago. No wonder people are unhappy about the economy! The benefits of rising levels of economic activity have simply not accrued to middle-income wage earners. 

Families in Middle Class Make Less Than They Did 5 Years Ago

Although median incomes have risen since 2011, they remain below their level of mid–2009, when the recovery officially began.

Median household income in 2014 dollars, seasonally adjusted

$56k

54k

52k

50k

$53.89k

2000

2002

2004

2006

2008

2010

2012

June

Median household income in 2014 dollars, seasonally adjusted

$56k

54k

52k

50k

$53.89k

2000

2005

2010

June

Source: Sentier Research, based on analysis of Census Bureau data

Other measures of Americans’ income that rely on averages paint a sunnier picture. For example, inflation-adjusted per-person disposable personal income is up 4.2 percent from mid-2009 to mid-2014. But averages like that can be distorted by strong income gains among the wealthiest, so looking at the median income can give a better sense of economic conditions faced by the majority of Americans. And by that measure, the gloomy news actually goes back even beyond the disappointing recovery of the last five years.

Sentier’s estimates of median household income, which are broadly consistent with the Census Bureau’s annual estimates, remain lower than they were in January 2000, when the data series began. The middle-income American family is worse off, in other words, than it was 14 years ago.

One more negative twist: The researchers broke down the shift in median income by type of family. And the steepest declines, with median income off 10.4 percent in the last five years, is in families with three or more children. It is large families that are seeing incomes fall off most sharply.

But there is some good news, too. If you look not at the entire five years of the current expansion, but only the last three, there has been improvement. June 2014 household incomes were up 3.8 percent in inflation-adjusted terms from June 2011.

“The recovery has been very slow,” said Gordon W. Green, an author of the report and a former census official. “Income didn’t start to turn around until the summer of 2011. The problem is that income dropped so sharply during the first two years that even though we started to rebound in the summer of 2011, by the time we get to the present, we’re still not where we were when the recovery started. But it is encouraging that income has turned around.”

The Census Bureau’s data on median income is more reliable than Sentier’s estimates, but it comes out once a year and with long delays (the 2013 number isn’t due until next month). The researchers behind the new numbers crunch data in the bureau’s Current Population Survey to arrive at an estimate of median income that is available monthly and with a much shorter delay.

So for a sense of when incomes are starting to accelerate for ordinary Americans — and thus when the official recovery feels like a broadly shared recovery — keep an eye on their data.