US Income Distribution
Inequality of US Income Distribution is Rising. For those of you who don’t know, the Congressional Research Service produces interesting reports. One that came out earlier this year was titled The U.S. Income Distribution: Trends and Issues. The report is 44 pages, so I have not read the whole report. However, I have used some charts from the report in my weekly review articles. For instance, their data on upward mobility by generation was in my article Is it Hard to Get Rich? But drilling down in the charts and tables is instructive. It pretty much verifies something that you already probably know, which is income equality is increasing over the past 40 years in the U.S. The bottom 20% and middle 40% household incomes are growing but at a much slower rate than those at the top 20%. The difference becomes starker when you look at the top 5%, 1%, and 0.1%. The rich are getting richer. People like Bezos, Gates, Buffett, and Bloomberg have more wealth than most and it keeps growing. Today, tech and finance are how people get rich.
What’s Your Income?
First, ask yourself what do people earn and where do you stand? In 2019, the median household income was $68,703 while the mean household income was $98,088. When the mean is much higher than the median it usually indicates that the average is being pulled higher by the very rich. The data also exhibits a right-skewed distribution, meaning that the majority of households are on the left-hand side of the chart and a smaller number are in the right-hand side of the chart. If you want to you can take a deeper look at the question are you rich?
The chart also shows that the percentage of households earning $200,000 to $249,999 and $250,000 and over is high compared to other groups. But this is an artifact of how the chart is constructed with the other groups only in $5,000 increment bins. On the lower end of the chart, there are many more wage earners. These people are earning less than the median income. For instance, if you are making $17 per hour that comes out to $35,360 per year.
Inequality in US Income Distribution is Rising
The rich are getting richer is something that the data bears out over the past 40 years. The chart below shows that those with income in the top quintile has grown more rapidly than the remaining 80%. This is especially true since about 1980 until 2000.
The period between 2000 and 2010 was unique in that almost everyone suffered. All five quintiles exhibited a decline in real average incomes. Income inequality declined but at the expense of households in the U.S. having lower income. This is likely not surprising as there were two economic recessions and two fairly severe bear markets during this decade. Large companies that were household names declared or skirted with bankruptcy.
From 2010 to 2019, average real incomes recovered. But the top 20% did better than the remaining 80%. The end result is that in the past 40 years inequality in U.S. income distribution has grown. Furthermore, it shows no signs of abating.
The interesting part is that income inequality is rising not only at the top of the income distribution but also at bottom. For instance, in 1975 the top 20% had a mean income that was 10.3 times the bottom 20%. By 2019 this multiple had grown to 16.6X. Similarly, in 1975, the fourth quintile’s mean income was 5.9 times greater than the bottom 20%. By 2019 the multiple had grown to 7.9X.
What is Driving Inequality in US Income Distribution?
What is driving the rising inequality in US income distribution? This is a complex question, and I am obviously not an expert. But some of it is due to rapid technological change, globalization, weaker unions, demographics, and other issues that are largely out of your control.
Technological change can make old technologies obsolete wiping out industries, e.g., digital cameras / smart phones and photographic film. Ask yourself what else is technological change affecting. Right now, I think renewables and fracking is adversely impacting coal. Technological change can also increase manufacturing efficiencies keeping a lid on labor demand and thus wages. Globalization has also made it easy to design in one country and manufacture in another country. Unions tend to push hourly working wages higher but today union membership as a percentage of total workers is low. Lastly, there is an increasing number of two earner households and married couples with similar education and high earnings. In any case, you get the idea.
Final Thoughts on Inequality in US Income Distribution
Inequality of US income distribution is rising across the entire income spectrum. The rich are getting richer is seemingly a very true statement. If you do not believe me, take a look at the chart below showing the income of the very rich is increasing faster than the merely rich. This is function of the rise of the superstar CEOs, actors, musicians, programmers, professors, hedge fund managers, etc.
What can you do? There is some income mobility especially if you your family moves from one to two people working or if you get promotion or raise. While income mobility may be hard, it is possible to build wealth by earning, saving, and investing. In the US. mobility of wealth is much easier than addressing inequality in income distribution. My series on Secret Dividend Millionaires demonstrates that and my millionaire interviews provides insights on how.
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Chart or Table of the Week
Today I highlight Cracker Barrel Old Country Store (CBRL). The main reason is that the popular restaurant chain reinstated the dividend at $1.00 per share quarterly. This is down from before the pandemic at $1.30 per share. Cracker Barrel also paid an annual special dividend from 2015 to 2019. The special dividend has not yet returned but it is only a matter of time in my opinion. The pandemic hit Cracker Barrel pretty hard, and the stock price plummeted. But the stock is now trading near levels before the pandemic. With rising vaccination rates, it is likely that 2021 will be much better for the restaurant chain than 2020. Before the pandemic, Cracker Barrel was a Dividend Contender with 17 years of dividend growth. The current yield is roughly 2.5%. The screenshot below is from Stock Rover*.
Dividend Increases and Reinstatements
I have created a searchable list of dividend increases and reinstatements at the request of a reader. I update this list weekly. You can search for your stocks by company name, ticker, and date.
Dividend Cuts and Suspensions List
I updated my dividend cuts and suspensions list at end of April. The number of companies on the list has risen to 523. We are well over 10% of companies that pay dividends having cut or suspended them since the start of the COVID-19 pandemic.
There were two new companies to add to the list this past month. These two companies were HollyFrontier Corporation (HFC) and AT&T (T).
Dow Jones Industrial Averages (DJIA): 34,530 (+0.94%)
NASDAQ: 13,749 (+2.06%)
S&P 500: 4,204 (+1.16%)
The S&P 500 is trading at a price-to-earnings ratio of 44.7X and the Schiller P/E Ratio is at about 37.3X. These two metrics are up this past week. Note that the long-term means of these two ratios are 15.9X and 16.8X, respectively.
I continue to believe that the market is overvalued at this point. I personally view anything over 30X as overvalued based on historical data. Note that we are near or over 40X and valuation levels near the top of the dot-com era.
S&P 500 PE Ratio
Shiller PE Ratio
Stock Market Volatility – CBOE VIX
The CBOE VIX measuring volatility was down over three points this past week to 16.76. The long-term average is approximately 19 to 20.
Fear & Greed Index
I also track the Fear & Greed Index. The index is now in Fear at a value of 38. This is up 4 points this past week.
There are seven indicators in the index. They are Put and Call Options, Junk Bond Demand, Market Momentum, Market Volatility, Stock Price Strength, Stock Price Breadth, and Safe Haven Demand.
Junk Bond Demand is indicating Extreme Greed. Investors are accepting 1.98% yield over investment grade corporate bonds. The spread is down further from recent levels indicating that investors are taking on more risk.
Market Momentum is indicating Greed. The S&P 500 is 7.02% over its 125-day average. This is further above the average than normal over the past 2-years.
Market Volatility is set at Neutral. The CBOE VIX reading of 16.76 is a neutral reading.
Put and Call Options are signaling Neutral. In the last five trading days, put option volume has lagged call option volume by 56.79%. This is a lower level of put buying in the past two years.
Stock Price Breadth is indicating Extreme Fear as advancing volume is 9.54% more than declining volume on the NYSE. Market breadth is improving but it is still near the lower end of its range.
Safe Haven Demand is in Extreme Fear. Stocks and bonds have provided a similar return over the past 20 trading days. This is close to the weakest performance for stocks over the past 2-years as investors move back into bonds.
Stock Price Strength is signaling Extreme Fear. The number of stocks hitting 52-week highs compared to those hitting 52-week lows is at the upper end of its range.
The Conference Board’s Consumer Confidence Index modestly declined to 117.2 from April’s revised level of 117.5. The Present Situation Index, an assessment of current business and labor market conditions, increased to 144.3 from 131.9. The Consumer Expectations Index which measures the short-term outlook fell to 99.1 from 107.9. The percentage of consumers expecting business conditions to improve over the next six months fell to 30.3%, while those expecting business conditions to worsen rose to 14.8%. The survey showed some consumer pessimism about the labor market as the proportion expecting more jobs in the months ahead fell to 27.2% percent, while those anticipating fewer jobs rose to 17.3 percent% in May. The One-year Consumer Inflation Rate Expectations increased to 6.5% from 6.2% in April.
The US Energy Information Administration reported that US commercial crude oil stockpiles decreased by 1.66M barrels to 484.3M barrels for the week ending May 21. Crude oil refinery inputs averaged 15.2M barrels per day, an increase of 123,000 barrels per day as compared to the previous week’s average. The EIA reported that gasoline supply declined by 1.7M barrels, while distillate inventories fell by 3M barrels. Refineries operated at 87% of their operable capacity, as gasoline production declined to an average of 9.7M barrels per day. Crude oil imports came in at 6.3M barrels per day, a decrease of 138,000 barrels per day as compared to the previous week. Total commercial petroleum inventories dropped by 7.7M barrels last week.
The Department of Labor reported that for the week ending May 22nd the seasonally adjusted initial jobless claims dropped to 406,000, down from the previous week’s unrevised 444,000. This is the fourth consecutive week of decline and the lowest level since March 14, 2020’s 256,000 level. The 4-week moving average dropped by 46,000 to 458,750 – also the lowest level since March 2020. Claims have dropped ~45% since the beginning of April.
Thanks for reading Inequality of US Income Distribution is Rising – Week in Review!
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