Unexpectedly Intriguing!
May 1, 2018

We're pleased to report that as of yesterday, and beginning with March 2018, Sentier Research has resumed providing monthly estimates of median household income in the U.S.!

That's exciting news for us, because we only entered into the median household income estimate business to fill the void that Sentier Research left behind when they suspended reporting their Current Population Survey-based data series in June 2017.

We'll have some more thoughts in the Analyst's Notes section that follows our own median household income estimates below, so since we had already drafted the following report before Sentier Research surprised us by jumping back into the business, let's get's to it....

We estimate that median household income in the U.S. rose to an estimated $59,358 in March 2018, which is up by a rounded 0.2% from our February 2018 estimate of $59,214. The following chart shows our estimates for the trends for both nominal (red) and inflation-adjusted median household income (blue) from January 2000 through March 2018.

Median Household Income in the 21st Century: Nominal and Real Estimates, January 2000 to March 2018

In nominal terms, which provide perhaps the best indication of the relative health of the U.S. economy as seen by typical American households, we find that the pace of growth of median household income is generally continuing the upturn that began in September 2017. After adjusting the monthly nominal household income estimates for inflation, so that they are expressed in terms of constant March 2018 U.S. dollars, we also find "real" median household income in recent months in the month-over-month change as the rate of consumer price inflation flattened out to near zero growth, thanks largely in part to a mostly seasonal increase in fuel and oil prices in the non-seasonally adjusted Consumer Price Index for all urban consumers.

These recent trends are easier to see in the following chart, where we have presented the year over year growth rate of median household income in the U.S. in the period from January 2001 through February 2018, which helps to smooth out the month-to-month noise in the inflation data.

Median Household Income in the 21st Century: Nominal and Real Year Over Year Growth Rates, January 2001 to March 2018

In year-over-year terms, we find that the growth rate of median household income slightly accelerated in March 2018 over previous months, registering a 2.4% increase over the February 2017. At the same time, the inflation-adjusted rate of growth was near zero, indicating that the effects of inflation kept pace over this time.

Considering the bigger picture, much of the "real" median household income story would at first glance appear to be mostly about oil and fuel prices in the U.S., where the inflation-adjusted median household income estimates are relatively elevated when those prices are low, but which either decline or are stagnant when those prices are high or are rising. We'll take a closer look at that relationship in upcoming months.

The methodology for the approach we've developed to generate these median household income estimates is described here. In generating inflation-adjusted portion of the Median Household Income in the 21st Century chart above, we've used the Consumer Price Index for All Urban Consumers (CPI-U) to adjust the nominal median household income estimates for inflation, so that they are expressed in terms of the U.S. dollars for the month for which we're reporting the newest income data.

Analyst's Notes

Sentier Research reports that median household income in the United States has risen to $61,227 through March 2018. That estimate is about 3% higher than our estimate of $59,358 for March 2018, but still falls within the range we indicated would apply for our estimates when we first introduced them after discussing some of the statistics behind them....

What that all means is that we can successfully estimate the Median Household Income figure that Sentier Research would have found using their methods with a relatively low margin of error, where our linear regression-derived estimate will almost always fall within 3% of the results of Sentier Research's median household income estimate, and within 1% just over two-thirds of the time. When you consider things like sampling errors and other statistical factors like compositional changes within U.S. households over time that would affect the accuracy of Sentier's income estimates, our results will very much be in the right ballpark.

And so that has proven to be the case over the last ten months, when we haven't had Sentier Research's estimates to check our own estimates against, until now! The following chart compares our estimates of Median Household Income (shown on the horizontal axis) with Sentier Research's estimates (shown on the vertical axis), where we confirm a pretty strong correlation between the two sets of estimates from January 2000 through March 2018.

Political Calculations' Estimates of Median Household Income versus Sentier Research's Estimates of Median Household Income, January 2000 to March 2018

Sentier Research's data for June 2017 through March 2018 confirms something that we've been increasingly concerned with in our own estimates, where we've recognized that they were very likely skewing to the underside of what the actual median household income estimates derived from data collected in the U.S. Census Bureau's ongoing Current Population Survey would indicate. In the absence of Sentier Research providing its monthly median household income estimates based on the Census Bureau's survey data, we were going to have to wait until the Census Bureau published its annual estimate for median household income for all of 2017 later this year, in September 2018, to be able to work out a more up-to-date correlation with the personal income data series we base our own estimates upon to account for the differences.

But now, with Sentier Research back in the business of providing monthly median household income estimates, we can get to work on that improvement sooner.

We've said before that "if someone else picks up Sentier's mantle and methodology for generating monthly median household income estimates, we'll be happy to feature their work!" We didn't expect that it would be Sentier Research once again, but we're genuinely excited that Sentier Research has resumed providing monthly median household income estimates.

Primarily, that's because we're customers of that data. We view our own median household income estimates as a complementary data series, which can be used to provide additional insight into the nature of changes captured within the survey-based median household income estimates that Sentier Research provides monthly and that the U.S. Census Bureau provides annually.

And of course, we have the ability to extend our monthly median household income estimates beyond the period of time covered by Sentier Research's monthly estimates, which only go back to January 2000. It's something that we're looking forward to exploring.

Data Sources

U.S. Bureau of Economic Analysis. Table 2.6. Personal Income and Its Disposition, Monthly, Personal Income and Outlays, Not Seasonally Adjusted, Monthly, Middle of Month. Population. [PDF Document, Online Database (via Federal Reserve Economic Data)]. Last Updated: 30 April 2018.

U.S. Bureau of Economic Analysis. Table 2.6. Personal Income and Its Disposition, Monthly, Personal Income and Outlays, Not Seasonally Adjusted, Monthly, Middle of Month. Compensation of Employees, Received: Wage and Salary Disbursements. [PDF Document, Online Database (via Federal Reserve Economic Data)]. Last Updated: 30 April 2018.

U.S. Department of Labor Bureau of Labor Statistics. Consumer Price Index, All Urban Consumers - (CPI-U), U.S. City Average, All Items, 1982-84=100. [Online Database (via Federal Reserve Economic Data)]. Last Updated: 11 April 2018. Accessed: 30 April 2018.

References

Sentier Research. Household Income Trends: January 2000 through May 2017. [Excel Spreadsheet with Nominal Median Household Incomes for January 2000 through January 2013 courtesy of Doug Short]. [PDF Document]. Accessed 22 June 2017. [Note: We've converted all data to be in terms of current (nominal) U.S. dollars to develop the analysis presented in this series.]

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