Median Household Income Growth (September 2015): Deflating The American Dream

What is the single best indicator of the American Dream? Many would point to household income growth. The Census Bureau has now published some selected annual household income data in a new report: Income and Poverty in the United States: 2014. Last year the median (middle) household income was $53,657 — a 0.13% year-over-year increase that shrinks to -1.48% when adjusted for inflation. Let’s put the new release into a larger historical context.

Our study of the Census Bureau’s historical data shows a 651% growth in median household incomes from 1967 through 2014. Sounds impressive, but if you adjust for inflation using the Census Bureau’s method, that nominal 651% total growth shrinks to about 21%.

But if we dig a bit deeper into the method of inflation adjustment, the American Dream looks more like an illusion, as in “money illusion”.

Our primary focus on 21st Century monthly median household income was based on the excellent monthly data available from Sentier Research. See Median Household Incomes: Monthly Update. The Sentier Research findings are based on Census Bureau (CB) data and adjusted for inflation using the Bureau of Labor Statistics (BLS) Consumer Price Index for Urban Consumers (CPI-U), which most people, including the BLS, commonly abbreviate as the “CPI”. However, the CB’s own annual data series for household income, which reaches back to 1967, uses a different index to “deflate” the nominal income data. The CB researchers adjust using the little-known CPI-U-RS (RS stands for “research series”) as the deflator for their annual data.

The BLS website has slender information about this index. A site search turns up this page, which contains a link to a PDF file with the index from 1977 through 2014.

Obviously the CB has a version of the annual CPI-U-RS back to 1967, the starting year for their household income series. We have not found the pre-1978 annual CPI-U-RS data at either the CB or BLS website. However, we can constuct this index from the CB’s latest annual data from 1967-2014 in Table H-5 linkable from their Historical Household Income Tables.