Rising US incomes defy election narrative

Posted on September 13, 2016

An Aarrow Sign Spinners representative spins a "Job Fair Today" sign during a Choice Career Fair in Los Angeles, California, U.S., on Wednesday, June 22, 2016. The U.S. Department of Labor is scheduled to release initial jobless claims figures on June 23. Photographer: Patrick T. Fallon/Bloomberg©Bloomberg

Household incomes surged last year in the US, suggesting American middle class fortunes are improving in defiance of the dark rhetoric that has dominated the presidential election campaign.

A strengthening labour market, higher wages and persistently subdued inflation pushed real median household income up 5.2 per cent between 2014 and 2015 to $56,516, the Census Bureau said on Tuesday. This marked the first gain since the eve of the global financial crisis in 2007 and the first time that inflation-adjusted growth exceeded 5 per cent since the bureau’s records began in 1967.

    The US election debate has been dominated by the story of long-term income stagnation, with analysts attributing the rise of Donald Trump in part to the shrinking ranks of America’s middle class, rising inequality and the impact of globalisation on household incomes. Tuesday’s strong numbers, which cover the year in which the Republican candidate launched his campaign, cast that narrative in a new light.

    The Democrats have struggled to defend their record during Barack Obama’s years in the White House following the financial crash of 2007-09. The problem for the president and for Hillary Clinton, the party’s presidential candidate, was that earnings growth remained doggedly poor despite the economic recovery.

    The Census Bureau’s figures suggest, however, that the longest streak of jobs growth on record, which has seen businesses add 15.1m jobs since 2010, finally started to pay dividends for households.

    But the increase in 2015 still brought incomes to just 1.6 per cent below the levels they were hovering at the year before the recession started and they remain 2.4 per cent below their peak in 1999. Income gains were largest at the bottom and middle of the income scale relative to the top, reducing income inequality.

    Justin Wolfers, a professor of economics at the University of Michigan, said the level of median income was still disappointing given that it has failed to recover its peak, but that the numbers showed there had been economic progress for the middle class.

    “The most important thing about this economic recovery is that it has been persistent,” he said. “It may be that in the first one, two, three years it was not superfast, but seven years later it is still going.” Given this comes in the face of numerous shocks around the world, “it is kind of impressive”.

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    Douglas Holtz-Eakin, the president of the American Action Forum and a former adviser to John McCain’s 2008 presidential campaign, said he remained concerned that gross domestic product growth of around 2 per cent over the long term would still not sustainably deliver the kind of income gains seen in previous generations.

    Growth was strongest in 2015 among the Hispanic population, at 6.1 per cent, and smallest among African Americans, at 4.1 per cent, while white households saw growth of 5.6 per cent. The ratio of earnings for women working full-time to those of men working full-time increased to 80 per cent, the highest on record.

    Adding to the improving story, the number of people in poverty fell 3.5m during the year, lowering the poverty rate to 13.5 per cent.

    Jared Bernstein, a senior fellow at the Center on Budget and Policy Priorities and a former adviser to vice-president Joe Biden, said in an email: “Climbing out of a hole is unquestionably progress, but we must do better.”

    He added: “Ideally, the living standards of families across the income scale should grow with the overall economy, making steady progress along with the expansion, not stagnation followed by a great year.”

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