by Gary Alexander

September 22, 2020

America was well on its way to unprecedented growth among all strata of society until the China virus invaded the world. Even if 2020 turns into a lost year due to Covidis Interuptus, maybe we can pick up in early 2021 where we left off in early 2020. So, to find out where we were a year ago, the Census Bureau just released its annual report on “Income and Poverty in the United States 2019” last week. It contains reams of details on household income and detailed demographics just before the Annus Horribulus, 2020.

Pardon me for all that Latin. Please bear with me as I report the Census highlights in English (and Math).

On Wednesday, September 15, 2020, the Census Bureau reported some spectacular economic data:

A Census of Household Income

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

INCOME

  • Median 2019 household income was $68,703, an increase of 6.8% from the 2018 median of $64,324.
  • The $4,379 increase in 2019 was greater than the entire eight years under Barack Obama’s Presidency.
  • This is the fifth consecutive annual increase in real median household income for family households.
  • The 2019 real median incomes of all ethnic categories increased, with gains by Blacks (+7.9%), Foreign-born (+8.5%), Asians (+10.6%), and Hispanics (+7.1%) exceeding gains by Whites (+5.7%).
  • Median earnings increased +7.8% for women compared to +2.5% for men, closing the gender gap.

POVERTY

  • The official poverty rate in 2019 was 10.5%, down 1.3 points from 11.8% in 2018. This is the fifth consecutive annual decline in poverty. Since 2014, the poverty rate has fallen 4.3 percentage points,
  • The 10.5% 2019 poverty rate is the lowest rate observed since estimates were first published in 1959.
  • The poverty rate for Whites decreased 1.0 percentage point to 9.1%.
  • The poverty rate for Blacks decreased by 2.0 percentage points to 18.8%.
  • The poverty rate for Hispanics decreased by 1.8 percentage points to 15.7%.
  • The poverty rate for Asians decreased 2.8 percentage points to 7.3%
  • The poverty rate for people under age 18 decreased 1.8 percentage points to 14.4%.

There is still a poverty gap between races, but the gap was the smallest ever and closing fast.

Source: “Income and Poverty in the United States: 2019” (The Census Bureau, September 15, 2020)

A Line Chart Depicting Unemployment Rates By Race

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

Let’s dig deeper into the data. The Census divides us into five “quintiles,” five groups of 20% each, from poorest to richest. There were 25.7 million households in each quintile in 2019. There is a great deal of misinterpretation of these data when they reach the newspapers, but here’s the bottom vs. the top 20%.

Category                                               Lowest 20%                                          Highest 20%

 Average household income               $15,286                                                 $254,449

Earners per household                        0.5                                                          2.0

Households with no earners              60.8%                                                    5.0%

Household income per earner           $30,572                                                 $127,225

Married households in quintile          16%                                                        78%

Heads of household age 35-64         40%                                                        69%

College degree                                      17%                                                        59%

(Data source: Census Bureau)

From this raw data, many reporters with a political or business bent – for marketing bad news – might say “the top 20% earn 16.6 times more than the bottom 20% ($254k vs. $15k), but the real earning power per worker is only 4.16 times larger ($127k vs. $30k). In addition, most in the top quintile were in their peak earning years (age 35-64) while only two in five in the lowest quintile were age 35-64. Also, the income totals do not include government benefits for being out of work or earning low wages. More than three of five households in the bottom quintile had no wage income and their welfare benefits are not shown here.

The obvious lesson is an old one. Success is an old and proven formula: Stay in school, marry a good person for the long term, and seek a rewarding career. Also, we Americans don’t stay frozen in the same quintile for our whole lives. We migrate from the low to the median to the high quintiles and sometimes retreat. As I scan the five quintiles, I see myself in college, early career, and peak earning power as I age.

Dr. Mark Perry cites studies by Thomas Hirschl (Cornell) and Mark Rank (Washington U.) showing that as a result of dynamic income mobility “nearly 70% of Americans will be in the top income quintile for at least one year while almost one-third will be in the top quintile for ten years or more” (see chart, below).

Bar Graph Depicting American Adults in the Top 20% of Income

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

The Middle Class is “Disappearing…” – They’re Becoming Rich!

There’s another myth – that the middle class is disappearing. Well, it’s half true, since most of them are moving up to the richer segment of the triangle, not falling into poverty. Adjusted for inflation, those earning $100,000 or more in 2019 dollars grew from barely 10% in 1967 to 34% in 2019, with a huge bump in the years 2018 and 2019 (see chart, below). There was an equal drop in the numbers of poor and middle class in 2018 and 2019. That’s very good news, but you will never hear it from Bernie Sanders.

Graph Depicting Shares of Total Household Income by Percent

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

Recall as you view these dramatic increases in income that the December 2017 tax rate cuts took effect in 2018, dramatically promoting many middle class into higher brackets, and reducing poverty levels. As a result, in 2019, there were a record-high 43.8 million U.S. households (34.1% of all households) earning $100,000 or more, while a record-low 25.4% of households earned $35,000 or less. This is revolutionary news. Do you recall reading it anywhere in any newspaper or Web outlet or cable news outlet last week?

We have heard for so long that “real wages are declining” (since 1970) that nobody would believe three times as many (per capita) now earn a real $100,000 than earned that much in 1967, but in almost every year from 1969 to 1983, there were twice as many low-income households as high-income households.

Every quarter, the Federal Reserve calculates American household net worth by calculating assets and liabilities to arrive at net worth. As of year-end 2019, we reached a record $117 trillion net worth (the peak of the black solid line, below), but then we retreated as of March 31, 2020, due to business closures and a resulting stock market panic in the initial Covid panic. The mid-year 2020 household wealth figure will come out soon, but it looks like we should see a new record high net worth as of September 30, 2020.

Line Graph Depicting assets liabilities and net Worth

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

Here is the gain in median current household income increase since 2014. Just as a reminder, the median is the mid-point, above which lie 50% of household incomes and below which lie the other 50%, so it is not skewed by the super-rich billionaires. In the last five years, the median household is 28% richer in nominal dollars – your dollars, as you count them. Half of those years came under Obama and half under Trump, so this isn’t a political statement; it’s just darn impressive to gain 28% more income in five years.

Year                    Median Household Income *       Annual Gain

     2014                            $53,657                                   N/A

     2015                            $56,516                                   +5.33%

     2016                            $59,039                                   +4.46%

    2017                            $61,372                                   +3.95%

    2018                            $63,179                                   +2.94%

    2019                            $68,703                                   +8.74%

*In current (nominal) dollars; Note: the median equals the midpoint of all households.

Source: Table C-1: Historical Median Income, Census Bureau, “Income and Poverty in the United States: 2019”

The 2019 leap to $68,703 was the largest annual increase in median household income since the Census Bureau started reporting these data in 1967, and it’s 10 times the average annual 0.68% gain since 1970.

Bar Chart Depicting Increases in Median Household Income

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

Based on this array of data, it was possible that Donald Trump would easily win re-election, but then a certain bug out of China had other ideas…. We may return to this winning formula in 2021 – or not, but however you vote, don’t believe the scaremongers who say the middle class is disappearing into poverty

All content above represents the opinion of Gary Alexander of Navellier & Associates, Inc.

Please see important disclosures below.

About The Author

Gary Alexander
SENIOR EDITOR

Gary Alexander has been Senior Writer at Navellier since 2009.  He edits Navellier’s weekly Marketmail and writes a weekly Growth Mail column, in which he uses market history to support the case for growth stocks.  For the previous 20 years before joining Navellier, he was Senior Executive Editor at InvestorPlace Media (formerly Phillips Publishing), where he worked with several leading investment analysts, including Louis Navellier (since 1997), helping launch Louis Navellier’s Blue Chip Growth and Global Growth newsletters.

Prior to that, Gary edited Wealth Magazine and Gold Newsletter and wrote various investment research reports for Jefferson Financial in New Orleans in the 1980s.  He began his financial newsletter career with KCI Communications in 1980, where he served as consulting editor for Personal Finance newsletter while serving as general manager of KCI’s Alexandria House book division.  Before that, he covered the economics beat for news magazines. All content of “Growth Mail” represents the opinion of Gary Alexander

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