March 26, 2009

Before the Great Recession, a Phantom Recovery

A new Pew Research Center report finds that for the typical American household, the Great Recession that began more than a year ago came on the heels of a less dramatic but equally unusual economic phenomenon: a Phantom Recovery.

The Center’s analysis of Census Bureau data finds that inflation-adjusted median household income — arguably the best single measure of the middle class standard of living — has remained at or below its 1999 peak in every year since then, first during the shallow recession at the start of this decade and later during the economic expansion that lasted from the end of 2001 to the end of 2007.

Overall, the eight-year period from 1999 through 2007 is the longest in modern U.S. economic history in which inflation-adjusted median household income failed to surpass an earlier peak. The Census Bureau has not yet released household income data for 2008, but the current recession (which officially began in December 2007) likely kept this key indicator below its 1999 peak again last year, and may keep it there into the next decade.

These new findings were presented to the Senate Finance Committee by Pew Research Center Executive Vice President Paul Taylor, who appeared as a witness at its hearing on middle-class tax relief.

The analysis noted that while median household income has not yet surpassed its 1999 peak, this key indicator has done much better over a longer time frame. From 1970 to 2007, it has risen by 21% in inflation-adjusted dollars. If one makes an additional adjustment for the decline in average household size over that time period (to 2.5 in 2007 from 3.1 in 1970), the effective value of that increase since 1970 grows to 41%.

Taylor’s testimony condensed and updated many of the findings of a major report the Pew Research Center’s Social & Demographic Trends Project released last year entitled “Inside the Middle Class: Bad Times Hit the Good Life.” The report combines findings of one of its major national public opinion surveys with the Center’s analysis of four decades of demographic and economic trends from the Census Bureau and other sources.

Read Taylor’s written testimony and see the full 169-page report (PDF).

Cite this publication: . “Before the Great Recession, a Phantom Recovery.” Pew Research Center, Washington, D.C. (March 26, 2009) http://www.pewsocialtrends.org/2009/03/26/before-the-great-recession-a-phantom-recovery/, accessed on July 22, 2014.