How to view a richer year for the poor and middle class

The income and poverty report released on Tuesday by the Census Bureau was such a blockbuster that you’d think the bureau had just issued Beyoncé’s next secret album the night before.

Even for many traditionally pessimistic economic observers, this was a very welcome report. Real median incomes rose 5.2 percent in 2015 — phenomenal growth by economic standards. And 3.5 million people moved out of poverty. But more important, 2015 was encouraging to economists because of where income growth was concentrated: the poor and middle class.

Incomes for the Middle Class and Poor Rose Sharply in 2015

Last year, the middle class and poor had the biggest gains in income since 1968.

We’re used to hearing about the sagging middle class, but in 2015, the middle class experienced its most income growth in nearly half a century. The income percentages of the middle class (the 40th, 50th and 60th deciles) all grew more than 5 percent.

For the poor, 2015 was only slightly less impressive. The 10th and 20th percentiles posted their second-highest growth numbers. The only other year when income grew faster was 1968.

In fact, maybe things are getting as good as they used to be. The pattern of 2015 is similar to that seen in 1968: high-income growth among the middle class and poor, and moderate income growth among the rich.

From the chart, you can see that in percentage terms, the poor tend to have wider ranges of growth and decline, reflecting the kind of financial instability that they face.

But the Poorest Have Still Lost Ground Over the Last Decade

Compared to 10 years before, incomes for poor households have fallen

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. | NYT

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