This is both good and bad news. While the bottom fifth of households increased their share of the nation’s income, the richest 5 percent kept 21.8 percent of the pie. Apparently, although the middle and the working classes have finally made some income advances since the Great Recession, it has done little to reduce their inequality with the wealthy. Read on:
The South Side neighborhood of Columbus, Ohio, in April
WASHINGTON — Americans last year reaped the largest economic gains in nearly a generation as poverty fell, health insurance coverage spread and incomes rose sharply for households on every rung of the economic ladder, ending years of stagnation.
The median household’s income in 2015 was $56,500, up 5.2 percent from the previous year — the largest single-year increase since record-keeping began in 1967, the Census Bureau said on Tuesday. The share of Americans living in poverty also posted the sharpest decline in decades.
The gains were an important milestone for the economic expansion that began in 2009. For the first time in recent years, the benefits of renewed prosperity are spreading broadly.
“It has been a long slog from the depths of the Great Recession, but things are finally starting to improve for many American households,” said Chris G. Christopher Jr., director of consumer economics at IHS Global Insight. He said the gains had continued this year.
The economic recovery, however, remains incomplete. The median household income was still 1.6 percent lower than in 2007, adjusting for inflation. It also remained 2.4 percent lower than the peak reached during the boom of the late 1990s. The number of people living in poverty also remained elevated, although it shrank last year by about 3.5 million, or roughly 8 percent.
Mark R. Rank, a professor of social welfare at Washington University in St. Louis, said the new data “is obviously good news.” But he noted that poverty and income inequality in the United States remained more extreme than in most developed countries. “It would take a lot to move that needle,” he said.
The Census Bureau also reported that the share of Americans with health insurance continued to increase. It said that only 9.1 percent of the population had no health insurance last year.
Several states, including Alaska, Indiana and Pennsylvania, expanded their Medicaid programs in 2015, taking advantage of increased federal funding under the Affordable Care Act. Private sector coverage also increased as companies hired more workers and offered them better benefits.
With the presidential election looming in less than two months, the annual report provided immediate fodder.
“We lifted three and a half million people out of poverty, the largest one-year drop in poverty since 1968,” President Obama said on Tuesday at a rally in Philadelphia for Mrs. Clinton. “The uninsured rate is the lowest since they began keeping records. The pay gap between men and women shrank to the lowest level on record,” he said, adding, “Thanks, Obama.”
The Census Bureau’s annual report, based on a survey of 95,000 households, is the latest evidence that 2015 was a good year for the economy. Employers added more than three million jobs as the unemployment rate fell to 5 percent. Hourly pay increased by 2 percent, adjusting for inflation. Americans drove more miles in their cars. Even housing showed some signs of a revival.
The details of the bureau’s report revealed that the gains last year were both broad and deep. Notably, lower-income households saw the largest income gains in percentage terms. Real household incomes rose 7.9 percent for households in the 10th percentile and 6.3 percent for those in the 20th percentile. By contrast, the increase was only 2.9 percent for those households in the 90th percentile.
“You know the old saying, ‘When the economy sniffles, the least advantaged catch pneumonia?’” said Jared Bernstein, an economist at the Center on Budget and Policy Priorities, a Washington research organization, and a former adviser to Vice President Joseph R. Biden Jr. “Well, that works the other way, too. The benefits of closing in on full employment disproportionately flow to the least advantaged.”
The increase in median income outpaced average income, which rose 4.5 percent to $79,263. The median income is the amount that divides households evenly between those that make less and those that make more. Average income is generally higher because some households make a lot more.
The gains, however, came mostly from job growth rather than wage growth. More people are working, but many of them are still struggling to maintain their standard of living.
The above graph shows income growth from 1970 to 2015, the top line representing the 95 percentile (the top 5 percent), the middle line the 50 percentile (the middle 50 percent) and the bottom the 20 percentile (the bottom 20 percent).
Jeff Labruzzo, 56, said he was still earning significantly less than before the recession. Mr. Labruzzo, who lives in southwest Louisiana, treats building sites for termites before concrete is poured. The construction business remains soft, and Mr. Labruzzo said he faced increased competition from firms that employ illegal immigrants. He had five workers, but he recently let two of them go.
“Things are to the point where I’m thinking about just closing up the business and letting my income drop,” Mr. Labruzzo said. As a veteran, he said he could then qualify for government health benefits.
Last year’s income gains do not fundamentally alter the economy’s long-term trajectory. Growth remains slow despite the Federal Reserve’s campaign to stimulate the economy. Predictions of faster growth, followed a few months later by disappointment, have become an annual ritual.
Both Fed officials and outside economists argue that stronger growth requires action by fiscal policy makers. But Democrats and Republicans are at loggerheads over the best steps, and there is little suggestion that a breakthrough is in the offing.
“It is encouraging that our economic recovery is lifting Americans out of poverty and boosting wages,” said Representative Nancy Pelosi of California, the minority leader. “But instead of building on this progress, Washington Republicans want to turn back the clock.”
Republicans responded in kind, presenting the data as evidence Democrats should step aside.
“Today’s report is another disappointing confirmation that too many Americans are still struggling to provide for their families and reach their full potential,” said Representative Kevin Brady of Texas, the chairman of the Ways and Means Committee. “The federal government invests billions of dollars each year in programs to help low-income Americans, but more than 43 million people continue to live in poverty.”
The distribution of income in the United States remains tilted toward the affluent. Last year’s gains by lower-income households were not enough to shift measures of income inequality.
The data also was a mixed bag for minority groups. Poverty rates fell most sharply for African-American and Hispanic households, but their income gains were smaller than for white households.
“One good year does not reverse decades of stagnation,” Mr. Bernstein said. “Middle- and low-income households need a lot more than one good year. We need to keep this going.”
The scene in New York’s SoHo neighborhood in April 2016. While affluent pockets like Manhattan have been doing well for a while, the fruits of the economic recovery have only recently been more broadly shared.
In the same issue of the New York Times, Quoctung Bui reaches a similar conclusion:
But no matter how good 2015 seems to be, it cannot undo the years of decline since the recession. If you measure income growth from a longer horizon, 10 years, the picture changes drastically. In addition to greater variance in growth (because we’re taking a longer view), you see that the balance of growth tips toward the rich — and that 2015 does nothing to change that trend.
It’s this long view that helps explain the economic anxiety that many people are experiencing. Also problematic is the divide in real income growth between households in rural and urban areas. Households outside of metro areas saw their incomes fall 2 percent, while households in cities saw their incomes grow 7.3 percent. So while those who pay close attention to economic statistics may cheer about one good year, it’ll take more widespread growth to change how people actually feel.