For all the recent breathless press hype surrounding this month’s Fed meeting, its outcome was hardly a shock: The Federal Open Market Committee elected to stand pat with interest rates while also setting the stage for a potential hike in December—a year after the first, and to date only, rate hike in this cycle. Wall Street now is gauging the odds of a hike this year at only around 50-50, but that’s perhaps overly optimistic. At least two Fed governors expressed outright anxiety that we’re waiting too long. Barring a major downside surprise in economic metrics, I expect we’re going to see the next hike in December.
The bigger economic news came from the Census Bureau, which reported this month that median household incomes rose by 5.2% in 2015, the biggest annual rise since the bureau started tracking the statistic in 1967, and a welcome reversal of post-recession trends. Even better: The income gains were widespread, with the lowest income groups rising the most (left chart). They further reported that the national poverty rate declined 1.2 percentage points, also a historically significant improvement, to 13.5%.
Alas, the good news must be tempered by the reality that this one-year gain barely dented the longer-term trends. Since incomes peaked in 1999, the real median household income is still down 2.4%. That’s right—adjusted for inflation, household incomes today are still below where they were at the end of the dot.com boom almost two decades ago. Moreover, as has been widely reported, the income gains in this century have been heavily concentrated among the most affluent households (right graph). Meanwhile, the killjoys at Brookings have concluded that the good news might well have been much less than it seems. Based on data from other sources, they argue that the gains in 2015 likely were less than reported by the Census Bureau. But that probably also means gains in prior years were a bit stronger.
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Andrew J. Nelson is Chief Economist for Colliers International in the United States. Based in San Francisco, he covers a mix of general economic topics as well as related issues that bear on the performance of property markets.