Taking the long term view of real median household income

See this impressive chart from the New York Times showing the drop in real (cpi adjusted) median household income since 2000.  The source for this chart is a new Sentier Research report by two former officials at the U.S. Census Bureau (Gordon Green and John Coder). 

Source: New York Times based on Sentier Research Report:
Household Income Trends During the Recession and Economic Recovery

This approach of showing change over time compared to a single baseline reference value often proves to be much more interesting than month-over-month or year-over-year displays.

Before even reading the full article, an underlying story with high explanatory power literally jumps off this chart at you.

You can find further details at: Recession Officially Over, U.S. Incomes Kept Falling.  The article introduces some new and helpful metrics such as the average cut in pay at rehire for those who lost jobs.  The NYT article also provides some disaggregation of the headline number for different groups (by age, by education, by race) but unfortunately does not provide charts for these.

 

Watch the trend, not just the latest data point

Some excellent thinking from Barry Ritholtz in his recent post NFP Report: Trend vs Single Data Point discussing on how best to interpret the latest job numbers.   

The key ideas I take away from this are to 1) watch the trend, 2) ask the right questions to establish context, 3) examine a wider range of metrics (not just the headline numbers),  and especially 4) not to over focus on the latest data point. 

Related to some of our recent posts, one of the things that makes following Barry's advise more difficult these days is the way that the standard reporting modes for key metrics almost universally use Month-over-Month, and/or or Year-over-Year figures.   Other ways of reporting the data can (such as net change over 2 years or 5 years) can reveal details that would otherwise remain hidden.  

Playing with the data, keeping context in mind, and looking for the trends and the answers to our deepest questions is the best path to more complete understanding and improved decision making.