Household Incomes Over Time: Divergence at the Very Top

Or why this economy is mired in slow growth

By Doug Short, Advisor Perspectives:

Among the most interesting of the long-term economic indicators we track is the Census Bureau’s annual data on the mean (average) household income received by each fifth (quintile) and top 5%. See my latest update here. A conspicuous pattern in the series is the widening of the spread in income growth that started during the 1980s.

Earlier this year we received an email from George Bussey, MD, a Healthcare Executive and Chief Medical Officer in Hawaii. George points out:

“If you pull out the top 5% from the top quintile, the 80-94 percentile group looks just like the other quintiles in terms of real income growth, i.e., none to minimal. From other analyses I’ve seen, that disproportionate growth is accentuated the thinner you slice the top end, i.e., the top 1% have much better growth than the 95-98, and the top 0.1% take the lion’s share of growth from the top 1%.

“So seems that unless you are in VERY rarified atmosphere, we are all treading water together, to the benefit of a very few.”

George’s email inspired a some charts based on the latest CB data on real household incomes to illustrate his point. The first breaks apart the top quintile (the blue line) into two constituents George mentions: the top 5% and everyone else in the quintile (i.e., the top 20% minus the top 5%). The historical values adjusted to 2014 dollar value.

The next chart shows the relative growth of the quintile and diverging growth of two constituents. We’ve added the NBER designated recessions during this 47-year time frame to illustrate the correlation between the incomes and the business cycle for the high-income crowd.

In the second chart we see the rather dramatic parting of ways in the early 1990s for the two subcomponents of the top quintile. Incomes had peaked for both in 1989, well in advance of the nasty eight-month recession that began in July 1990. The top five percent rebounded after that recession and soared during the Roaring Nineties. The two 20th century recessions have clearly impacted the top quintile, but especially the top five percent, which hit its growth peak in 2006 and was down 4.8% from that peak as of the 2014 annual data.

What about the Middle American Household? we’ll close this commentary with the same growth chart but with the addition of the middle quintile as a surrogate for Middle America.

Note in the chart above that the growth divergence between the top five percent and the middle quintile dates from the early 1980s and the onset (coincidentally or not) of Reaganomics.

These are slow-motion trends, to be sure. But they are major contributors to an evolving vision of the US economy and where it’s headed. By Doug Short, Advisor Perspectives.

But all games have an endgame. Read… While We Sleep, Corporate Execs Strip-Mine America


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  3 comments for “Household Incomes Over Time: Divergence at the Very Top

  1. rich black says:

    And the rich just got richer, because this week marked the stock market’s largest gain on 2015. The masters of the universe are still the masters of the universe.

    • Nigelk says:

      La solution est la guillotine.

      I hold out fading hope that the “Masters of the Universe” understand their choice of unwinding can be 1776-ish or decidedly more 1789-ish.

      It seems they are choosing the latter.

      • Nick Kelly says:

        !789 didn’t work out well for France. or for the lead revolutionaries, who mostly met the blade. In a sense the country never recovered.
        Ironically today it is the least egalitarian Western society with about 200 families running the country, far worse than the UK with its figurehead monarchy.
        Socially, the situation is if anything more extreme. A person at a dinner seated next to a social ‘inferior’ is likely to turn their plate upside down and leave.
        There has never been an equivalent of a Margaret Thatcher, raised above a grocery store. Note: the point is her origins, not her politics. Another recent UK PM whose name escapes me at this moment was the son of a trapeze artist.

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