High Rate Of Spending Continues For Households

Earlier this week, Sentier Research began publishing timely real (inflation adjusted) median income data after almost a year hiatus. Finally, we have TIMELY hard real median income data - and the following from Wikipedia shows why median income data is important.

Per Wikipedia:

One half, 49.98%, of all income in the US was earned by households with an income over $100,000, the top twenty percent. Over one quarter, 28.5%, of all income was earned by the top 8%, those households earning more than $150,000 a year. The top 3.65%, with incomes over $200,000, earned 17.5%.

Repeating - half of all income in the USA is earned by households earning more than $100,000. Income data we analyze monthly is per capita income which is naturally screwed towards the higher income folks. It is very important to know how the median family of Joe and Jane Sixpack is doing. And this is what Sentier told usabout median income:

New data from the monthly Current Population Survey (CPS), indicate that median annual household income in March 2018 was $61,227, nearly the same as the median for February. Median household incomes for both February and March of this year were higher than for any other month since January 2000, but only 1.8 percent above the median for that month of $60,124.

But income only tells us part of the story. The other half of the analysis needs to be on expenditures - spending habits continue to change. Unfortunately, there is no real median expenditure data available - and the data we have points to expenditures rising faster than income. The following chart compares disposable income to expenditures. Here we see for the last two years the pace of expenditures has been growing faster than income.

Indexed to Jan 2000, Growth of Real Disposable Income (blue line) to Real Expenditures (red line)

The above chart is not median expenditures but the sum total of all consumer expenditures. We do not know if it is a Joe / Jane Sixpack or a Bill Gates which is fueling this spending growth. From time-to-time, somebody publishes median expenditure data, From Pew:

When comparing the median household income curves to spending, between 2000 and 2014 spending was up much more than income. Based on the current rate of growth of expenditures it appears this trend of spending growing faster than income remains in play today. Sooner or later, spending must slow.

Other Economic News this Week:

The Econintersect Economic Index for May 2018 again improved and remains in territory associated with economic growth which is normally associated with expansions. There are continuing warning signs of consumer over-consumption.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Investing , Economy

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