US household income rises for first time since 2007

Dive Brief:

U.S. household income has risen, poverty is ebbing, employment is solidifying and the wage gap is narrowing, the federal government reported Tuesday, citing data conducted by the U.S. Census Bureau.
Real median household income — essentially the middle of middle-income earners — grew by an inflation-adjusted 5.2% from $53,718 in 2014 to $56,516 in 2015, the first annual increase since 2007. The number of full-time, year-round workers increased by 2.4 million in 2015. For most demographic groups, the 2015 income estimates were statistically higher than the 2014 estimates, according to the report.
The official poverty rate decreased by 1.2 percentage points between 2014 and 2015, and the number of U.S. citizens living in poverty fell by 3.5 million between 2014 and 2015, the largest annual percentage point drop since 1999, officials said.

Dive Insight:

This is a stunning report, indicating that middle income earners in the U.S. at long last are experiencing some relief after the Great Recession — a development that bodes well for retailers that have struggled to cater to households wary of the state of their finances.

The biggest story here is in the narrowing wage gap, which has been cited by economists for years now as the reason consumer spending has remained somewhat muted despite the ongoing recovery from the 2008 economic meltdown. Importantly, the poverty drop extended through several demographic groups, including whites, blacks, Hispanics, children and seniors, according to the report.

The outlook isn’t rosy everywhere, however. Rural areas haven’t seen the same level of recovery: The median income for people living outside of urban communities fell 2% to $44,657, according to the report. In addition, income inequality in the U.S. has been severe, the result of a deterioration of the middle class that has been happening since the 1970s, and the improvements shown in the report still have a ways to go, experts say.

“It would take a lot to move that needle,” Mark R. Rank, a professor of social welfare at Washington University in St. Louis, told the New York Times, adding that it’s worse here than in many other developed countries.

How this reality affects retailers long term remains an open question. U.S. consumers have remained price-sensitive for a long time now. Many retailers, beset by assertive pricing policies from the likes of Amazon, continue to lure customers by competing on price, which can be a downward spiral. And studies show that shoppers, especially millennials, are prioritizing experiences over merchandise, in an effort to give some meaning to their spending.

Several retailers, including Target, have noted a “difficult retail environment” in recent disappointing quarterly reports. The test will likely be this holiday season, a time when many retailers traditionally rack up nearly a third of their annual sales.