WASHINGTON — The Pew Research Center, a nonpartisan think tank, put out an interesting report the other day, whose main conclusion is this: Much of the Great Recession's economic damage has been repaired. On average, most working U.S. households — there are many individual exceptions of course — are earning more than before the recession. To skeptics of the strong U.S. recovery (including me), this is powerful evidence to the contrary.
It's also confusing. When Pew economist Richard Fry crunched the numbers of a recent Federal Reserve study, he found that most generations of working Americans now have higher incomes than before the recession. Even so, he also reported that median incomes for all U.S. households had actually declined about 3 percent since 2007.
How could this be? The findings seem contradictory.
The explanation is that income gains of working households are being offset by the income declines of retirees. When people retire, their incomes typically drop, even though Social Security and their savings — mostly homes, stocks and bonds — may enable them to live a comfortable life.
There are times when a table is worth a thousand words. This is one of those times. Look at the table below. It gives income information (corrected for both inflation and household size) for all the generations since World War II: The Silent Generation — those born from 1928 to 1945 and who were 71 to 88 in 2016; the baby boom — born from 1946 to 1964 and who were 52 to 70 in 2016; Generation X — born from 1965 to 1980 and who were 36 to 51 in 2016; and, finally, millennials, born from 1981 to 1996 and who were 20 to 35 in 2016.
The table confirms that most non-elderly U.S. households are, according to Pew's analysis, at near record-level incomes. The glaring exceptions are the Silent Generation and baby boomers, whose incomes have declined substantially from their peaks. For example, baby boomers' income peaked at $84,864 in 2007 and dropped 15 percent by 2016.
But this is almost certainly a reflection of demographics, says Fry. Thousands of baby boomers — many with well-paid jobs — are retiring every day. For many if not most, their incomes drop when they leave the labor force. As more baby boomers retire, their influence on their median income becomes larger. The same process has already affected the Silent Generation.
Just the opposite may be happening to millennials. As is well known, they bore much of the brunt of the Great Recession. Marriage and homeownership rates dropped; many have continued living with their parents. But these younger workers, in their late 20s and early 30s, are now moving up career ladders and receiving larger pay increases. That probably explains most of the millennials' income gain of nearly two-fifths.
What's more, savings rates have remained relatively high, as first pointed out by The Wall Street Journal's Paul Kiernan. The personal savings rate is defined as after-tax personal income minus spending. In 2005, it got as low as 3.2 percent, but from 2014 to 2017, it has averaged 7 percent. This suggests that many households are either saving more or borrowing less (borrowing is negative savings).
That's probably good news for the economy. It suggests that households aren't so over-extended with loans that any setback will tip the country into a long and deep slump. Companies and households have enough cash to withstand another recession without draconian cuts in either consumer purchases or business investment.
There's another lesson, too: Our economic rhetoric has a negative bias. Given a chance of describing the economy, many politicians, pundits and economists of both the left and right embrace the worst possible interpretation. Conventional wisdom holds that incomes are "stagnant," even when — as the Pew study indicates — they're moving ahead slowly. Who knows, we may be richer than we think.