There's a question no one wants to ask, but it's time we do:
What happens to the U.S. economy if American consumers get so financially strapped that they stop spending money?
You see, it's a well-known fact that 70% of the U.S economy depends on consumer spending. If consumer spending slips, it will weaken the U.S. economy, which means lower earnings – and lower stock prices.
And the household income trends that I'm about to show you suggest that this vital pillar of the U.S economy has some serious cracks in it…
The Dangerous Trend in Median Household Income
According to U.S. Census Bureau data, median household income – the level where exactly half take in more and half take in less – fell 0.2% in 2012 to an inflation-adjusted $51,017. And that's 8.3% lower than where the median household income stood in 2007, before the recession began.
What increases Americans have gotten over the years – about $11,000 since 2000 – have been more than negated by inflation.
The decline for 2012 puts inflation-adjusted median household income at a level not seen since the mid-1990s. In fact, a long-term chart of median income shows that families made less in 2012 than they did in 1989.
"The bleeding has stopped, I suppose, but incomes have yet to increase," Richard Fry, an economist at Pew Research Center told The Wall Street Journal. "Asset prices are rising, but when we look out at Main Street, at what households are getting, there isn't much growth."
It's a far cry from the years that followed the recession of the early 1990s, when the median household income rose 15%, from $48,884 in 1993 to $56,080 in 1999.
It's also worth pointing out that median household income is not median salary. Median household income includes all sources of income, including multiple wage earners. The median annual wage in the United States is much lower – just under $27,000.
So, what happened to our wages?
One reason so many Americans have seen no real income growth is the persistently high unemployment left over from the recession; 11 million Americans remain unemployed. Businesses feel no need to offer more pay when most workers are easily replaced.
And the bulk of the new jobs are in low-paying industries like retail, which means many of those who have found new jobs after the layoffs of the Great Recession are making less than they did before.
For those who ended up with lower-wage jobs, the news gets even worse.
According to the Labor Department, the average hourly pay for a nongovernment, non-supervisory worker has dropped to $8.77 from $8.85 in June 2009 – the end of the recession.
But as ominous as the decline in median income is, that's not the worst news. There's a related trend that's even more disturbing…
About the Author
Dave has been a journalist for more than 35 years, including 18 spent at The Baltimore Sun. He has worked as a writer, editor, and page designer at different times in his career. He's interviewed a number of well-known personalities - ranging from punk rock icon Joey Ramone to Apple Inc. co-founder Steve Wozniak.
Over the course of his journalistic career, Dave has covered many diverse subjects. Since arriving at Money Morning in 2011, he has focused primarily on technology. He's an expert on both Apple and cryptocurrencies. He started writing about Apple for The Sun in the mid-1990s, and had an Apple blog on The Sun's web site from 2007-2009. Dave's been writing about Bitcoin since 2011 - long before most people had even heard of it. He even mined it for a short time.
Dave has a BA in English and Mass Communications from Loyola University Maryland.