Political Calculations' initial estimate of median household income in September 2023 is $76,382, an increase of $166 (or 0.22%) from the corrected initial estimate of $76,216 in August 2023 (we initially reported an estimate of $76,201).

After adjusting for inflation, the income of the typical American household was relatively unchanged from the previous month. While very slightly lower, it was not significantly so, coming within $25 of the revised inflation-adjusted estimate for August 2023.

The latest update to Political Calculations' chart tracking Median Household Income in the 21st Century shows the nominal (red) and inflation-adjusted (blue) trends for median household income in the United States from January 2000 through September 2023. The inflation-adjusted figures are presented in terms of constant September 2023 U.S. dollars.

Analyst's Notes

September 2023 only saw very small upward adjustments to the BEA's monthly estimates of aggregate wage and salary income for July (+0.003%) and August (+0.004%).

After the sheer volume of new and revised data last month, it's a relief to have just two data points to have to address this time around. We were able to catch and correct the fortunately very minor errors related to last month's estimate that we mentioned above. To see what changed as result, please click through to that post.

Since we no longer have high frequency data like Sentier Research's monthly estimates to check against, we have a much harder job in identifying if anything is changing in the relationship between median household income, for which we are now using the U.S. Census Bureau's annual estimates, and the trailing twelve month average of individual earned wage and salary income, which can be found using data that's reported monthly. Earlier this year, we discovered that relationship changed significantly after March 2021. Here's an updated version of the chart that pointed us in that direction:

The data after March 2021 is clearly very different from the data in any month of the 21+ years that preceded it. And since the median household estimates we generate use this data, we realized it could potentially explain why our estimate for December 2021's median household income turned out to be significantly higher than the U.S. Census Bureau's annual estimate for 2021. It suggested the relationship between trailing year average of individual earned income and median household income had changed, such that median household income not keeping up with the pace at which trailing year average of individual earned income was increasing.

That would be an earth-shattering change from what we've previously observed in the historic data. We've successfully telescoped our original model of that relationship back to 1986, before the deviation between the model and the Census Bureau's annual median household estimates became unacceptably large.

Since we first developed that model, we've found that changes in the Census Bureau's survey methods influence its median household income estimates, which in turn, influences how well our model projects its estimates. Major changes in these methods were implemented in March 1987 and March 2015, which explains why that original model works over this period, give or take a year or so, but not in the periods before or since. Because of the survey method-driven change in relationship after March 2015, we updated the model to reflect it.

But now, there has been no such similar revision in the Census Bureau's survey methods. We suspect something more fundamental has changed, which is not evident in the historic data. That's why we had to wait for the Census Bureau's annual median household income estimate for 2022, which was finally released during September 2023. We couldn't find out if that was the case before it became available.

While we had the downside of having to wait, there was one benefit in continuing to provide monthly estimates of median household income based on our post-March 2015 model. It would provide a unique counterfactual to quantify how differently median household income has evolved since March 2021 compared to what would have been reasonably expected with the same changes in the trailing twelve month average of individual earned income during every month of the seven preceding years. Our chart visualizing the differences is available here.

That data suggests median household income is now growing much more slowly than the trailing twelve month average of individual earned income and has been in every month since March 2021. That change raises the obvious question of what changed to make the relationship in the months after March 2021 so different from the decades that preceded it. We don't know the answer to that question yet and we're looking forward to finding out. All the more so because that outcome has major implications that raises lots of other questions.

References

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. [Online Database (via Federal Reserve Economic Data)]. Last Updated: 27 October 2023. Accessed: 28 October 2023.

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. [Online Database (via Federal Reserve Economic Data)]. Last Updated: 27 October 2023. Accessed: 28 October 2023.

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: 12 October 2023. Accessed: 12 October 2023.

Image credit: Photo by Andres Siimon on Unsplash.