After falling steadily since the recession began four years ago, household income appeared to turn the corner by rising sharply the last four months of 2011.
Inflation-adjusted median household income increased 4%, from $49,434 to $51,413, from August to December, according to a study released Thursday by Sentier Research. That’s the biggest jump since the start of the recession in December 2007, according to an analysis of Labor Department data by the economic research firm.
The rise coincides with stronger job growth, modest wage increases, a longer workweek and easing inflation. “We seem to have had a turning point,” says Gordon Green, co-author of the report and a former economist at the U.S. Census Bureau.
The study is consistent with other government reports that show rising national income in recent months. But those reports reflect aggregate or average U.S. income, which may be skewed by wealthier Americans. The Sentier study is more indicative of a typical household, says Dean Maki, chief U.S. economist for Barclays Capital.
Real median household income is still 7% lower than it was in December 2007 and 3.9% lower than in June 2009, when the recession officially ended, the study says. Americans’ income continued to fall in the recovery, Sentier data show, as more workers sought fewer jobs and many of the unemployed took lower-level positions to get by.
The recent rebound in inflation-adjusted income does not mean employers are doling out more generous raises. Average hourly earnings in January were up about 2% from a year ago and have been increasing at about that pace for two years.
But as economic growth accelerated to a 2.8% annual rate in the fourth quarter from less than 1% in the first half of 2011, the average workweek increased from 34.3 hours to 34.5 hours. Meanwhile, inflation slowed substantially late last year as gasoline prices eased, though gas prices have ticked up recently.
Maki expects 2.5% inflation this year, down from 3.3% in 2011, leaving Americans more disposable income. As a result, he estimates inflation-adjusted consumer spending will increase 2.7%, up from 1.6% last year. Consumer spending makes up about 70% of the economy.
Meanwhile, stronger monthly job gains — an average 183,000 the past five months, vs. 143,000 the previous eight months — should mean bigger raises for employees, but probably not until 2013, Maki says.
Kris Roudebush, 39, a U.S. postal worker, has been working 12 extra hours a week since December because of the Christmas and income tax mailing seasons, providing her an extra $400 or so a month. Roudebush, of Wichita, hasn’t boosted her spending because she anticipates her hours will soon be cut and gas prices could rise .
If that happens, “Any disposable income is going to be eaten up pretty quick,” she says.
By Paul Davidson, USA Today