No, The Average Salary is not $800k – Week in Review

The Average Salary is not $800k

An interesting Tweet gained traction this past week and went viral. Reportedly, a Wharton Business School professor says one of her students thought the average American salary was $800k. In addition, Nina Strohminger, a professor of legal studies and business law, stated about 25% of her students thought the average American salary was over six figures. These values are obviously much too high. Nevertheless, the Wharton students’ answers lead to the question of the average salary?

Six Figures Salaries Still Not Common

It is essential to distinguish the average salary from the mean or median household income; they are not the same thing. The median income for all households was $68,703 in 2019. Married couples had a median income of $102,308. However, these values are based on two or more incomes in many households and may include passive income streams from dividends, rental properties, royalties, etc.

Before we address the question about average salaries, we should answer who earns a six-figure salary. I previously wrote an article called Six-Figure Salary to Build Wealth. The list consisted of doctors, lawyers, dentists, scientists, engineers, IT, managers, and a few others in the US. Anesthesiologists had the highest mean salary of $271,440 and a median salary of at least $208,000. Other doctors are not too far behind this value. One fact is common, though. Almost all occupations on the list typically need a Bachelor of Science at a minimum and more likely need a professional or advanced degree. However, a six figure salary is still not too common since many more profession earn less.

Average Salary in America

According to the Social Security website, the average (mean) net salary was around $53,383 in 2020. This value is more than double the value of $20,924 in 1991. The average salary had trended up each year except in 2009 when it dropped slightly due to the Great Recession. The chart below shows the values for both average and median in the past 20 years.

One point is apparent, though, the average net salary increases faster than the average median net salary. This fact means the upper end of the salary range is rising more quickly than the lower end.

We should note that average mean and median salary data varies depending on the method it was calculated and the data source. For instance, the median weekly earnings in Q4 2021 were $1,010 per week, according to the Bureau of Labor Statistics (BLS). This value gives a median total annual salary of $52,520. According to Spendmenot, the average yearly income is $52,276 in 2019 based on BLS data. They took the average salary per state per year and calculated the average in the US. According to the US Census Bureau, the average per capita income was $34,103, including every single person in the US.

Average Salary by State in the US

The average salary by state differs significantly in the US. It also varies by data sources and method it was calculated. The table below compares the average annual salary by state from ZipRecruiter, Spendmenot, indeed, BLS Annual Mean, and BLS Average Weekly Wage. However, the highest salaries tend to be in the Northeast and west coast while the lowest salaries are in less densely populated states.

The ZipRecruiter results are different since they are based on job postings and ADP (ADP) employee payroll data. ADP states its payroll reports are based on 26 million workers employed by nearly 460,000 US clients. On the other hand, the BLS data is based on employer reports.

Average Salary by Country

The average salary by country is much more challenging to determine for several reasons. The two main challenges are data collection may not be good in some countries and, second, not all countries use the same currency. These two facts make it difficult to compare salaries between countries.

However, there have been attempts to determine equivalent average salaries across countries. The most common method is to take the Gross National Income (GNI) and divide it by the total population and convert to dollars. This calculation gives a per capita value and includes children. There are two main problems with this method. First, some countries may not have sufficiently accurate measurements of GNI, including salaries, wages, unearned income on investments, and capital gains. Second, population counts may not be accurate. Additionally, the calculation includes children who do not typically earn salaries.

In any case, the World Bank has performed this calculation for 2019, and the top 10 countries are in the table below.

Country	GNI Per Capita ($)
Switzerland	$65,600
Norway	$60,776
Luxembourg	$60,409
Iceland	$57,829
United States	$55,419
Denmark	$51,087
Singapore	$48,344
Qatar	$45,338
Sweden	$43,998

Final Thoughts on No, the Average Salary is not $800k

The average salary in the US or anywhere else is not $800k, nor is it six figures. Depending on how the average annual salary is determined, only Washington DC has an average salary of more than $99,999. Household incomes are much higher since it is based on two or more incomes, and in 2019 the household incomes exceeded $100,000 in the US. In addition, there are professions where the average is a six-figure salary, but it is not the norm.

• Read Net Worth Targets by Age

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The Stock of the Week

Today I highlight the year-to-date performance of the 11 sectors, highest percentage gainers, 52-week highs, and 52-week lows. Due to persistent selling, the market is down in 2022 after a strong 2021.

The only sector performing positively is Energy. Consumer Defense and Financial Services are performing well in a rising interest rate environment, but are still down for the year. But other sectors are being punished, especially Technology and Consumer Cyclical.

Many companies are receiving analyst downgrades on lower growth expectations caused by supply chain disruptions, labor shortages, omicron variant, etc. These problems are not limited to the US but are occurring globally. Additionally, active traders and insiders are selling shares after a strong upward trend in 2021. For the buy-and-hold dividend growth investor, this is an opportunity. Dividend growth stocks like Starbucks (SBUX), Ecolab (ECL), and Ross Stores (ROST) are deep in correction territory. The screenshot below is from Stock Rover*.

Dividend Increases and Reinstatements

I have created a searchable list of dividend increases and reinstatements. I update this list weekly. In addition, 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 the end of December 2021. As a result, the number of companies on the list has risen to 541. Thus, well over 10% of companies that pay dividends have cut or suspended them since the start of the COVID-19 pandemic.

There were no new additions in December, indicating that companies are experiencing solid profits and cash flow.

Market Indices

Dow Jones Industrial Averages (DJIA): 34,265 (-4.58%)

NASDAQ: 13,769 (-7.55%)

S&P 500: 4,398 (-5.68%)

Market Valuation

The S&P 500 is trading at a price-to-earnings ratio of 25.1X, and the Schiller P/E Ratio is about 36.3X. These two metrics were down the past three weeks. 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 view anything over 30X as overvalued based on historical data. The S&P 500’s valuation came down as the index companies reported solid earnings for the second consecutive quarter.

S&P 500 PE Ratio History

Shiller PE Ratio History

Stock Market Volatility – CBOE VIX

This past week, the CBOE VIX measuring volatility was up ~9.5 points to 28.85. The long-term average is approximately 19 to 20. The CBOE VIX measures the stock market’s expectation of volatility based on S&P 500 index options. It is commonly referred to as the fear index.

Yield Curve

The two yield curves shown here are the 10-year US Treasury Bond minus the 3-month US Treasury Bill from the NY York Fed and the 10-year US Treasury Bond minus the 2-year US Treasury Bond from the St. Louis Fed.

Inversion of the yield curve has been increasingly viewed as a leading indicator of recessions about two to six quarters ahead, according to the NY Fed. The higher the spread between the two interest rates, the higher the probability of a recession.

Economic News

The US Census Bureau reported new residential building permits increased 9.1% in December 2021 to a seasonally adjusted 1.873M. New residential building permits are +6.5% above the December 2020 level. Building permits surged in the Northeast (+111.9%) and Midwest (+21.95), while both the West (-10.0%) and South (-0.85%) saw decreases. A total of 1.725M construction permits were issued in all of 2021, a 17.2% increase over 2020. In addition, there were 1.595M housing starts in 2021, a 15.6% rise over 2020.

The Labor Department reported higher initial jobless claims for the week ending January 15th. The seasonally adjusted initial claims were up at 286,000, an increase of 55,000 from the previous week’s upwardly revised number. The 4-week moving average was 231,000, a decrease of 20,000 from last week’s revised average. California led with a 6,075 increase in claims, while New York reported a 14,011 drop in claims.

The National Association of Realtors reported that sales of existing homes declined 4.6% in December 2021 to a seasonally-adjusted annual rate of 6.18M, but was up 7.1% compared to December 2020. “December saw sales retreat, but the pullback was more a sign of supply constraints than an indication of a weakened demand for housing,” said Lawrence Yun, NAR’s chief economist. Seventy-nine percent of the homes sold in December 2021 were on the market for less than a month. The median sales price increased to $358,000 (+15.8% Y/Y). The median existing single-family home price was $364,300 in December (+16.1% Y/Y), while the existing condo price was $305,100 (+11.9% Y/Y).

Thanks for reading, No, the Average Salary is not $800k – Week in Review!

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