Columns

Stagnant wages will cut your spending

At first glance, the news report from the Census Bureau last week looked great: Real median household income nationwide went up slightly last year, even after adjusting for inflation.

By Helen Huntley, Times Personal Finance Editor
Published September 2, 2007

At first glance, the news report from the Census Bureau last week looked great: Real median household income nationwide went up slightly last year, even after adjusting for inflation.

You're excused if you didn't feel like celebrating when you heard the news. The story behind the numbers is this: Median incomes of year-round full-time wage earners went down a little more than 1 percent, to $42,261 for men and $32,515 for women. Yes, the women earned 77 percent of what the men took home.

That means the increase in household and per capita income came from other sources: part-time work, interest, dividends, rents and benefit payments.

"It's a clear case of profits squeezing wage growth and an indictment of the highly unequal nature of this recovery," said Jared Bernstein, a program director at the Economic Policy Institute in Washington, D.C. He said last year's gain in household income was positive, but not enough to offset the losses sustained since 2000.

The Census Bureau's statistics also showed that the gap between the rich and the poor got just a tad wider. Households in the top 20 percent earned 50.5 percent of the income in 2006, up from 50.4 percent in 2005 and 46.2 percent 20 years ago.

"The top 20 percent are doing fairly well, the next 40 percent are running in place and those in the bottom 40 percent are doing worse," said Scott Brown, senior economist at Raymond James & Associates in St. Petersburg.

Even if you're in the lucky top 20 percent, you might want to pay attention because stagnant wage growth ultimately is a threat to consumer spending and the economy. That's especially true as tighter credit standards and falling home prices make it more difficult for consumers to tap their home equity to finance purchases or pay off their credit cards.

As more of your paycheck goes for necessities from food and gasoline to insurance and utilities, you've got less to spend on discretionary purchases large (cars and boats) and small (movies and restaurant meals).

"For those in the top 20 percent, it doesn't matter how much you spend filling up an SUV," Brown said. "For those in the middle, it matters quite a lot."

Helen Huntley can be reached at huntley@sptimes.com or (727) 893-8230.

[Last modified August 31, 2007, 12:30:07]