The Dow is Not the Economy

The Dow Jones Industrial Average reached and then slightly exceeded a top level reached in 2007:

October 9, 2007	14,164.53
March 5, 2013	14,253.77

This caused something of a hoopla in last night’s news coverage and in the headlines this morning. One reason for this is that the Dow Jones, the Nasdaq, and the S&P 500—all of which sum up the stock markets minute-to-minute during work days are the only ever really current statistical indicators. Therefore, certainly in the media, they are taken for an indicator of the Economy. But, of course, the Dow is not the economy. Not really. The speculative reactions of market traders to news of one sort or another, their “sense” or “smell” of what is happening—not in the real economy, where people live, but to the valuations of corporations, most of which are operating world-wide, are not really a measurement that indicates genuine values achieved—except to those who get all of their income from gambling on the market.

Above two real indicators. I’m showing median household income as one, the unemployment rate as another. Both are shown for the 2007 through 2012 period. Median means the household income at the very middle of the distribution. Thus half earn less, half earn more. In 2011, using Census data, the median income was $50,505. The Average household income, which reflects the huge incomes of the top 1 percent, is much higher. In 2011 it was $76,062.

These two indicators show that we are quite a long distance still, five years later, from the performance of the real economy in 2007. In that year the median was $55,039, the unemployment rate at 4.6 percent. In 2012 the corresponding values were $50,964 and 8.1 percent.

Listening to the coverage on Public Television last night, I heard again mentioned that there are two economies. The Dow reports on one, the economy of concentrated wealth. The household income and unemployment data report on the economy of ordinary people. One of the oddities of the laisser faire free market is that, without massive and energetic government intervention, it will trend toward monopoly power. Eventually, of course, when the population is impoverished, it wipes itself out.

Households, Recessions, Marriage

Households form when young adults leave the nest and set up on their own. These moves are typically voluntary and happen because the person leaving has the means to support him or herself. On average (say in the 1971-2010 period), 62 percent of households are formed by young people marrying each other, 38 by going off alone. In either case, economic conditions have a strong influence on whether to leave the parental home. I find the following graphic, which charts increases in total households year by year since 1970—and also shows increases or decreases in total single-person households—fascinating:

I’ve included recessionary periods on the chart. The message they convey is somewhat ambiguous, but what is clear is that in the more severe recession—thus those of the longest duration or those that are close together, the economy seems definitely to influence household formations. This is clearly shown in the recessions of 1973, the two recessions close to each other in the early 1980s, and most pronounced in the Great Recession, the effects of which still linger on.

Notice here especially that single-person household numbers can show an actual absolute decline, which happened in 1983, 1987, 1993, 1994, 2009, and 2010. The young adults went home again.  Total household numbers do not shrink because the population is not declining but is growing, in recent years (2001-2009) at an average rate of 2.8 million a year.

Over the long term, increase in households is declining as shown in the following table:

	Increase in Households - %
1940-1950	24.6
1950-1950	21.2
1960-1970	20.1
1970-1980	27.4
1980-1990	15.6
1990-2000	12.2
2000-2010	12.3

The peak in growth, from 1970 to 1980, is certainly due to the baby boom generation’s maturing, those born 1946 through 1964. Thereafter, more and more, marriage lost its hold on the American public. In the 1970-2010 period, total households grew at the rate of 1.6 percent a year, single-households at the rate of 2.7, family households at the rate of 1.1 percent annually.

We’re not there yet—and it’s my conviction that curves never drop nor ever rise forever—but for many people “bowling alone” is a daily reality—until the money runs out and it’s back to the parents again.

The Rich Get Richer

Yesterday I mentioned growing income inequality—in the aggregate. Today another look at that subject. Herewith a graphic on the changing distribution of income by each fifth of the U.S. population of households. These data show shares of income and how they’ve changed from a base of 1990 at decade intervals. The data come from this Census facility (link); select Table H-2.

Notable here is that share of income by the four lower quintiles has dropped—and that the top quintile has gained share consistently. The rich are getting richer, the poor poorer. In 2010, the four lower quintiles, thus 80 percent of households, earned less than the top quintile.

Evidently this erosion of economic power has not translated into any kind of political reaction as yet. The two top quintiles, representing 40 percent of the voters, and having average income of $79,000 (fourth) and $170,000 (fifth) are numerous and influential enough to produce an electorate roughly equally divided between the parties. How long will this last? Or is it that people do not vote based on their economic interests? If they did, an administration much more concerned with equitable income distribution would be a shoe-in.

Household Income

Newspapers and media yesterday reported that median household income has dropped again as of June 2011. The New York Times headline was, “Recession Officially Over, U.S. Incomes Kept Falling.” The number actually cited was $49,909 in real dollars produced in a special study. That number is somewhat higher than the value I have from the Bureau of Labor Statistics’ Current Population Survey for 2010, but never mind small details. The BLS values are based on 2010 constant dollars. The inflation adjustments used by the Sentier Research study (link) cited by the NYT are not explicitly stated. I thought I’d put up some history here. The data are from this BLS facility (Table H-6, All Races).

Along with the median household income (half earn more, half less), I am also providing average household income (mean income). Beginning and end values are shown in numbers along with the highest points and the lowest—if the lowest are not at the beginning. I’ve also provided a bar graph at the bottom showing the difference between average and median.

After at least two previous jobless recoveries, it should not surprise us that incomes lag the ends of recessions. Indeed the divergence between GDP- and Jobs-performance has become, for me, an economic indicator. One way to read it is that economic well-being as measured by the GDP is no longer a reliable measure for human well-being measured by full employment and consequent quality of life. Another way to read this is that wealth no long trickles down as it once did—thus that the distribution of gross national wealth is no longer quite as even as once it was.

This last point is illustrated by the difference between average and median income. It has been growing. And since these data show constant dollars, that difference is absolute. The movement of the Gini Index, which charts income inequality, is shown in the next graphic for the same period of time.

Some notes. If you want to understand how the Gini Coefficient is calculated, here are two posts on the Old LaMarotte (one, two). The data for this graphic are from this BLS facility; select Income Inequality and then Table H-4. The larger the Gini, the greater the inequality.

Notice that on this chart the Gini advanced during the Great Recession while both jobs and income dropped. We are slowly entering a very different era, but we think that things should follow patterns as in the old days. They no longer do. That is what should concern us.

A New Minority

The Census Bureau today released full data on households in the United States as part of the official 2010 Census. Census results are based on a 100-percent count, weigh more heavily than projections or estimates made in intervening years—or such sources as the Current Population Survey. These data therefore have a certain added heft.

The upshot is that the trend made memorable by Robert D. Putnam in his book 2000 book, Bowling Alone: America’s Declining Social Capital, still holds and is gaining in strength. Putnam first published his view in a 1995 essay. The added attraction, in this release, is that in 2010, for the first time officially (which is what the decennial census is, the word) married couple families have now finally achieved the coveted minority status.

The data in summary: We had 116.7 million households in the United States in 2010. Of those 66.4 percent were family households, 48.4 percent were married-couple families, 18.1 percent families headed by a female (13.1%) or a male (5%), 33.6 percent were non-family households. The number that will be cited is that 48.4 percent, minority status for the traditional family category. Herewith a graphic. The 2010 data are from the Census Bureau’s American FactFinder facility; data for the other dates comes from the source cited in an earlier post here.

The chart is telling. Lines going downward indicate traditional and lines going up the modern style of life. The biggest gain in share of households is by non-family households, the overwhelming majority of which is men and women bowling alone. Other gains in share have been realized by single-parent households, more by those headed by females than males. The biggest loss is in married-couple families, declining from 70.5 to 48.4 percent of total households.

More than half of us are now alone—entirely or alone with children. It’s not surprising to hear the airwaves filled with talk of family values—a value rarely underlined in the 1950s when most of us, looking back, saw families in our past. The consequences of ever more children growing up in what the New York Times gently labeled “less traditional” arrangements this morning, covering this story, is beginning to become visible too, but that wave has not yet grown to its full size.

Trends: Single-Parent Households with Children

Yesterday I mentioned, in passing, the growth of single-parent households. Today I thought I’d follow that up with a deep data series, thus back 50 years. I have these data from the Statistical Abstract (link, look at Table 59) but ultimately derived from the Census Bureau’s Current Population survey. To focus sharply on the crucial issues, the upbringing of children, I’ve selected for graphing data on households with children under 18 years of age in each category shown. Here is the graphic:

The faint bars show married couple households; the curves show female- and male-headed single-parent households—and the sum of these in red. In 1960 single-parent households represented 9.1 percent of all households with children—in my view already high. In 2009 that percentage stood at 29.5 percent!

The growth rates in this period? Well, all single-parent households with children grew an annual rate of 3.1 percent; female-headed households in this category grew at 2.9 percent a year, male-headed households had the quite astonishing 4.6 percent annual growth rate.

Well, what about married-couple households. These are (thank the Lord) still the most numerous, but they had virtually no growth at all, increasing at the rate of a mere 0.15 percent a year. This means that virtually all growth in households with children took place in the marginal categories—and the largest proportion of these in 2009 (80%) were headed by females—whose earning powers are well under those of men.

Disconnects—everywhere. Most people don’t see data like these so baldly displayed—or would know how to extract them out of the deep bowels of our statistics archives—but the feeling that something is wrong is certainly present and supported by personal observation and experience. It feeds the boiling rage that heats our current politics. Because all these endless disconnects are driving us mad! The local papers are full of sports triumphs or tragedies—and spiced with civic corruption, the closing schools, and teacher-layoffs. Nationally they drip with billions we spend in foreign wars—and at whim expend on saving revolutionaries in Libya. At home vast numbers of children live in poverty while we orate about family values. It’s time to clear all this debris, return to nation building here at home, and start once more looking for the unity that once made the United States a beacon.