Tuesday, August 28, 2007

Earnings Are Down

This morning the Census Bureau released the latest report on the finances of American households—the results of the Current Population Survey's Annual Social and Economic Supplement. Taken every March, the Census Bureau releases the survey's findings at this time each year, tracking income, health insurance, and poverty trends. The findings might not attract as much media attention as the stock market's ups and downs, but they are probably a more important indicator of the health of the economy.

And it is not looking good. This year's results are disturbing. To find the trouble spots, you have to look beyond the headlines. Here is my analysis of the numbers.

Median household income in 2006 stood at $48,201, a 0.7 percent increase since 2005 after adjusting for inflation. This sounds good until you consider the following: The 2006 median is still 2.1 percent below the peak reached in 1999, after adjusting for inflation.

The number of households with incomes of $100,000 or more is at a record high. The share of households with six-figure incomes reached 19.1 percent in 2006. This sounds promising, but here's the hitch: Workers are losing ground. Household incomes are growing only because more people are working full-time. In fact, earnings are falling for American workers. The $42,261 median earnings of men working full-time in 2006 were 1.1 percent less than in 2005, after adjusting for inflation. Men's earnings today are 5 percent below their peak, reached decades ago in 1978. Women with full-time jobs are also losing ground. Their median earnings of $32,515 in 2006 were also 1 percent less than in 2005, after adjusting for inflation.

How could household incomes grow as earnings fall? This seeming contradiction is explained by the fact that the average household has more earners than ever before. Between 2005 and 2006, the number of households grew by 1.6 million, but the number of full-time workers expanded by nearly 3 million. Household incomes are rising because Americans are working harder to keep up with the rising cost of living.

For more about the latest income statistics, see the Census Bureau report.

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