The next chart is my preferred way to show the nominal and real household income — the percent change over time. Essentially I have taken the monthly series for both the nominal and real household incomes and divided them by their respective values at the beginning of 2000. The advantage to this approach is that it clearly quantifies the changes in both series and avoids a common distraction of using dollar amounts (“How does my household stack up?”).
The stunning reality illustrated here is that the real median household income series spent most of the first nine years of the 21st century struggling slightly below its purchasing power at the turn of the century. Real incomes (the blue line) hit an interim peak at a fractional 0.7% in early 2008, far below the nominal illusionary peak (as in money illusion) of 27.2% six months later and now at 30.8%, an all-time high. In contrast, the real recovery from the trough has been depressingly slight.
Let’s take a closer look at the monthly data since the end of the Great Recession. The adjacent chart highlights the real monthly median values since 2008. The right axis shows the same scale as the chart above — the percent change from the real household income value at the start of the 21st century. The June 2014 real median annual income is 6.6% below our turn-of-the-century starting point and 7.2% below is 21st century high in January 2008. Note, however, that the Sentier calculations are based on pre-tax data. The expiration of the 2% FICA tax cut in December of 2012 put an additional hit on disposable incomes, especially for those household on tight budgets.
Is there seasonality to the monthly data? The column chart shows the monthly averages of nominal month-over-month change since 2000.
As the excellent data from Sentier Research makes clear, the mainstream U.S. household was struggling before the Great Recession. At this point, real household incomes are in worse shape than they were four years ago when the recession ended.
I’ll close this update with another look at real growth, highlighting the actual monthly data points and adding a three-month moving average. The MA trend has been slowly zigzagging higher since the trough in 2011, which illustrates Gordon Green’s observations in the latest press release.
Check back next month for the latest update.
This article is brought to you courtesy of Doug Short from Advisor Perspectives.