Prosperous_American_family

  • Healthy households are a major positive for the economy
  • Consumers are generally employed, wealthier, and increasingly confident
  • Income growth, a key driver of spending, is on the rise

Consumer sentiment has reached its highest level in 16 years, and a quick look at American household fundamentals helps explains why. The jobless rate is now below its prerecession low and likely to fall further. Meanwhile, household net worth is at an all-time high, debt has been reduced, and rising housing prices have pulled millions of homeowners out of negative equity.   Perhaps the best news though has been the rapid rebound in household income over the past few years.

The Census Bureau recently reported that real median household income increased in 2016 for the fourth consecutive year and now stands at its highest level ever. Longer-term gains are even more impressive, especially considering average household size has gradually declined over the last 50 years (see chart). The typical household today has an annual income $14,144 greater than in 1967 – that’s almost $1,200 every month for fewer people.

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And it’s not just the wealthy who are benefiting from the current economic expansion anymore. Recently, those on the lower end of income distribution have seen their income gains outpace those on the higher end—a continuation of a long-term trend in upward mobility that has unfortunately gone underreported. Yes, the “middle-class is disappearing,” but it’s because households are gradually moving up into higher income groups, not down into lower ones (see chart).

Not all the news is good. The aftereffects of the Great Recession included many years of income stagnation that cannot be made up, and a good part of recent gains have come because Americans are working harder and longer rather than experiencing significant wage growth. Many families also are now having to rely on more than one breadwinner to get ahead. Still, from a broader perspective, the average U.S. household is in better shape today than it’s been in a very long time

When asked about our positive outlook for the economy, we point to the consumer sector.  The extent of the U.S. economy’s dependence on the consumer for growth is difficult to overstate. Personal household consumption accounts for nearly 70% of U.S. GDP, a figure that’s more than 10% higher than the average for other developed countries. Or, put another way, as long as the U.S. consumer continues to do well, the U.S. economy should too.

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Index Definitions

The Conference Board Leading Economic Index is an American economic leading indicator intended to forecast future economic activity. It is calculated by The Conference Board, a nongovernmental organization, which determines the value of the index from the values of ten key variables.

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