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Obama Celebrates Phantom Economic Numbers

Obama Celebrates Phantom Economic Numbers

(Getty Images/AFP/Saul Loeb)

Wednesday, 21 September 2016 07:33 AM Current | Bio | Archive


Last week’s household income data inspired a lot of gushing. President Obama couldn’t resist congratulating himself: “Thanks, Obama,” he told a Philadelphia crowd.

The numbers did look impressive at first glance. Median household income rose 5.2% in 2015, the first gain since 2007. The middle class finally saw some progress after a stagnant decade.

Not exactly.

Government economic reports are never as clear-cut as the headlines imply. That’s not because anyone is manipulating them; I think the number gnomes who compile them do their honest best. And they would squawk at any political pressure.

No, the problem is that in a country of 330 million people it’s impossible to distill accurate conclusions down to one sentence, or even one page. That’s why the actual reports are dozens or even hundreds of footnote-laden pages. You can spin them to support whatever conclusion you want to draw.

Obama was spinning wildly on this one. Let’s slow it down and look closer.

First, the report showed median household income. What’s a household? It’s a group of people living under one roof. The collective income of those who work comprises the household income. It doesn’t matter whether it comes from one breadwinner, a working couple or more.

The very same report broke out job earnings for men and women. In 2015 the average male earned 1.5% more than in 2014. For women it was 2.7%.

Simple math will tell you that a typical husband-wife household’s total wages could not have grown 5.2% when the two spouses earned only 1.5% and 2.7% more.

So how do they get to 5.2% more for the median household? There are two possibilities.

One is that the rest of the added income came from a source other than job earnings.

“Income” as this report defines it can include Social Security or VA benefits, welfare, disability, unemployment, alimony, child support, and a whole list of other sources including the catch-all “other income.”

An increase in any of those adds to your household income. It doesn’t necessarily mean the economy improved. Maybe the government is handing out more free cash. That’s enough to change the report.

Another possibility is that households consolidated. So maybe you have a married couple with an adult child. He has a job and lived on his own in 2014. His rent rose in 2015 so he moved back in with mom and dad.

Presto! Now we have a household with three workers instead of two. It makes more than it did in 2014 - even if no one got a raise and everyone’s living standard is the same. But in reality their lives are all a little worse because more people have to share the house.

Something like this in just 5% or 10% of households could easily explain the “great news” that President Obama found so thrilling.

The reality he hopes you don’t notice is that in inflation-adjusted terms, median household income has gone nowhere since the turn of the century.

Furthermore, we’re overdue for another recession before recovering from the last one.

Any good news is welcome. I don’t doubt some households saw improvement in the last year or two. Is it reason for the whole country to celebrate?

No. We still have a long way to go.


Patrick Watson is an Austin-based financial writer and senior editor at Mauldin Economics. Follow him on Twitter @PatrickW


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Last week's household income data inspired a lot of gushing. President Obama couldn't resist congratulating himself: "Thanks, Obama," he told a Philadelphia crowd.
obama, economic, numbers, phantom
Wednesday, 21 September 2016 07:33 AM
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