From Hamlet on my board on the FOOL on wage deflation
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Well, here is the calculations for the median income dataset.
Adjusted for inflation in terms of purchasing power:
1995's $34,100 is equal to $39,746.07 in 2002. From the $42,400 figure we get compound annual growth rate in real terms of .93% over the last 7 years.
1996's $35,400 = $40,254.95 in 2002. A CAGR of .85% over the last 6 years.
1997's $37,100 = $40,959.31 in 2002. CAGR of .69% over the last 5 years.
1998's $38,900 = $42,228.67 in 2002. CAGR of .10% over the last 4 years
1999's $40,800 = $43,593.75 in 2002. CAGR of -.92%
2000's $42,300 = $44,008.24 in 2002. CAGR of –1.84%
2001”s $42,900 = $43,586.40 in 2002. CAGR of –2.72%
As you can see, when you factor in purchasing power, i.e. the effect of inflation on income, we see that the median income growth rate has been declining when seen as real versus nominal; tipping over into a negative rate of growth from 1999 on. Of course the 2001 data is skewed by the mild recession we had. Nevertheless, given the low rates of inflation over the last 4-7 years, that overall CAGR is anemic.
What is interesting, and troubling, is that the growth rate of incomes is lagging the growth rate of the economy.
If I were to use a business model analogy, what you are seeing is increasing is a steady decline in the net profit margin despite increasing revenues. Or in other words, general economic growth is having a declining effect on income growth.
I tend to avoid forecasting – in serious way, unlike playing the who will win the Oscar's, or the somewhat lightly put out “fearless predictions” I posted on this board a little while ago. But, from my reading of the trend lines, and an overall sense of the macro-economic gestalt, I can see real incomes for average American households being 10-15% lower in the next twenty years.
As to whether that can be reversed, and the implications if it isn't, are very unclear to me. By nature I'm not a pessimist, but it is very hard to be optimistic – there are too many things that can go wrong, and too few that I can envision going right. |
