For years, the standard knock on this economic expansion has been twofold: Growth has been slow, and big businesses and wealthy investors have been its major beneficiaries, rather than middle-class wage earners.
And it has been a fair criticism. At least until recently.
The growth rate is still disappointingly slow, but that second part no longer appears to be true. After all these years, the fruits of the recovery are now being delivered more broadly. While all the attention is focused on new census data confirming the change, it is actually a broad range of evidence that makes the case compelling.
The most decisive evidence of improving fortunes is found in new census data released Tuesday showing that median household income rose a whopping 5.2 percent in 2015, to around $56,500. According to that data, incomes rose for black families, white families, Hispanic families and Asian-American families. It rose for young people and in households headed by middle-aged adults and older people. In short, the improvement was across the board to a remarkable degree.
Those new census numbers don’t come as a complete shock. And there’s little reason to think they’re a statistical aberration. Rather, they are broadly consistent with a body of evidence that shows inflation-adjusted incomes for the mass of Americans have finally started to rise in a meaningful way.
One dirty secret of economic analysis is that there is no perfect way to measure the financial well-being of 320 million Americans. Every measurement of income is flawed in its own way. So the best we can do is look at how people are doing from a range of measures, understand the differences among them and what they show.
For example, the median household income numbers released Tuesday aren’t adjusted for changes in the size of a typical household. Two individuals making $50,000 and living separately form two middle-income households; if they move in together, they form a single high-income household. Shifts in how many people marry, divorce or cohabitate can shift the apparent median household income without changing the underlying economic well-being of the middle class.
You could look at income measures per person rather than per household, such as per-capita disposable personal income data compiled by the Commerce Department. But because that is an average, it can mask shifts in distribution. If a billionaire like Bill Gates walks into a bar, the average wealth of the people therein will be astronomical, but it doesn’t mean the typical patron can now afford to switch from drinking Miller Lite to Dom Pérignon Champagne.
Flaws acknowledged, that measure has showed consistent annual real per-person after-tax income growth since the start of 2014, and that number is up 10.3 percent since the expansion began in mid-2009.
Or maybe you want to focus more on the status of wages, rather than broader measures of income. After all, it is people’s earnings from a job, rather than from a pension or investments, that reflect underlying economic conditions. One way of looking at that is the Labor Department’s data on average hourly earnings for nonsupervisory employees, a longstanding data series on what working stiffs take home in wages.
It has also been rising, at around a 2.5 percent rate before factoring in for inflation, which has been low enough to make that extra 2.5 percent in hourly pay add up to a gain in purchasing power. Part of the story behind the good median income numbers for 2015 is that oil prices fell sharply that year, pulling down inflation and helping the after-inflation income gain look higher.
How This Expansion Stacks Up
By many measures, the current expansion has been better for Americans’ incomes than the mid-2000s expansion.
Or maybe you want to adjust shifts in income for things like the value of tax credits and social welfare benefits, and the value of health care and other benefits received. The Congressional Budget Office does that math — but with such long time lags that the 2013 numbers were published only recently.
So how does the current economic expansion stack up according to some of the more readily available measures of income? How did Americans fare in the period from 2010 to 2015, for example, compared with the five-year periods following the end of the previous two recessions (that would be 1992-1997 and 2002-2007)?
The 5.6 percent rise in median household income from 2010 to 2015 is a great deal better than in the mid-2000s expansion and somewhat worse than in the mid-1990s recovery. Using inflation-adjusted average hourly earnings for nonsupervisory workers, the mid-1990s and current expansion are about the same, compared with no gain in the mid-2000s. Both the poorest and richest Americans did better in the 1990s but worse in the mid-2000s.
Interestingly, that pattern reverses when looking at per-capita personal income. That measure was strongest in the mid-2000s, perhaps reflecting strong income gains at the top of the ladder (there’s Bill Gates walking into a bar again).
So the good news is that this expansion is generating stronger income growth for typical American families than they experienced in the early part of this century. The bad news is that it falls short of the results from the mid-1990s. The five-year time horizon used here — 1992-1997 — understates the strength of that expansion, because the economy was in an all-out boom from 1998 to 2000. The median household still makes 1.6 percent less in inflation-adjusted terms than it did in 2007, before the global financial crisis.
It’s worth celebrating the real progress finally being made in getting the benefits of the expansion spread more broadly. But we will need the caveat that it isn’t hard to find evidence that the gains could be stronger still.