American Income Levels Stagnant for over 20 years!

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On February 13th, at I must add the ungodly hour of 6:30am PST, I spoke with Stuart Varney on Fox Business concerning the dismal state of income levels in the United States. According to the US Census bureau, median household income is just over $51k, which is about where it was 20 years ago! We also just learned that real disposable personal income has fallen by 2.7% from a year ago, the biggest collapse since the semi-depression in 1974!  American income levels have been stagnant for over 20 years.

On top of weak income levels, the employment situation continues to be of great concern. US unemployment rate is now at 6.6%, but this measure has become relatively meaningless as it no longer accurately describes what is happening in the work force. A more descriptive measure is the labor force participation rate, meaning the proportion of the population either employed or looking for employment as a percent of the population. That number is down at 63%, a level we have not seen since 1978! If the labor force participation rate were still at pre-crisis levels, the unemployment rate would be closer to 13%. Some argue that the decline in the labor force participation rate is primarily driven by the inevitable retirement waves of the baby boomers. However, the chart below illustrates that baby boomers are in fact participating in the work force at a higher rate than in decades, for women we are at all-time highs.


With income struggling, it should come as no surprise that savings levels are well below what they ought to be for a financially healthy country. The IRS’s most recent Quarterly Statistics of Income Bulletin is for the 2010 and 2011 tax filings, so it is a bit dated, but nonetheless, very insightful as to trends. According to the release 145.6 million taxpayers were eligible to contribute to an individual retirement account (IRA) in 2010, but only 3.5 million actually did so and of those that did, 62% were over 49 years old. Uh oh! Only 2.4% of those eligible to contribute to their IRAs did so. The average account value is only $92,000 and only 27.6% of all tax filers even have an IRA. Lastly, that wee bit of spending spree we experienced in December? With income struggling, that was funded by consumers dipping into their piggy banks to the tune of $46 billion causing the personal savings rate to fall from 4.3% to 3.9%, the lowest since January 2013.

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