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Snapshot for September 5, 2007.

Typical families see income and earnings decline

by John Irons

American families today are increasingly feeling the pinch of higher energy prices, housing market uncertainty, and growing health care costs. Historically, typical families could expect to see annual increases in their earnings to help cope with financial challenges, improve their standard of living, or just save for a rainy day. These expectations of economic progress are no longer being met.

Last week the Census Bureau released new estimates of inflation-adjusted household incomes and individual earnings. Median real household income in 2006 was $48,201, an increase of $356, or about 0.7%, from 2005. At this point in the economic recovery, we should expect to see an increase. But it is important to put this increase in historical context, as well as closely examine the causes.

In an alarming reversal of past progress, real household income for the typical family has declined over the last seven years. Despite increases over the prior two years, median household income for 2006 (the last year for which data are available) is still $1,043 below its peak in 1999. As the Figure shows, the three decades prior to 2000 saw average annual household income increases that ranged between 0.4% and 0.9%. This is in stark contrast with a 0.33% decline in the 2000s since hitting a peak in 1999.