Family Income and GDP Growth in the U.S.

A. Sinan Ünür
August 28, 2008

As I was watching Bill Clinton’s speech, I thought it would be an interesting exercise to put into perspective the changes in U.S. family income and GDP over the last 30 years. All too often, our attention is limited to what happened in the last quarter or maybe the last year if we can remember that far back. Sometimes, it is a good idea to look at the big picture.

The chart below shows the percentage change from the previous year in real GDP (that is, adjusted for inflation) between 1977 and 2007. Any point above the red line corresponds to a year when the economy grew and any point below that line corresponds to a year when the economy shrank.

The fact that U.S. GDP shrank in only three out of these last thirty years is the first thing that strikes me when I look at this graph. The economy shrank during 1980, the last year of President Carter’s single term presidency. It also shrank in 1982, the second year of Reagan’s first term. The remaining six years of the Reagan presidency achieved healthy rates of growth. The growth rate slowed during President George H. W. Bush’s term, 1991 is the third and last year in the preceding decades where the U.S. economy shrank. By 1992, the economy was growing again, but it was too late to do Bush Sr. any good.

Between 1993 and 1999, during the first seven years, President Bill Clinton’s presidency, the U.S. economy continued to grow consistently. However, by 2000, with the IT bubble bursting, the growth began to slow down and the decline continued during the first year of President George W. Bush. Of course, 9/11 did not help matters in that year.

In 2002, economic growth started to pick up speed again and the rate of growth continued to increase until 2005. In 2005, 2006 and 2007, the U.S. GDP grew at a slower pace but it still continued growing despite major natural disasters in 2005 (Katrina was not the only major hurricane to strike the U.S.), international turmoil and rising energy prices.

So, you can tell grandma that news of the return of the Great Depression are a little exaggerated.

The next graph shows the annual percentage change in median U.S. income.

The initial slowdown in median family income growth came during the third year of President Carter’s term. The next year, median family income declined by 3.4%. The decline continued during the first two years of President Reagan’s term but at slower rate. Then, it continued to grow until the second year of President Bush Sr. The decline was sustained until the second year of President Clinton’s term. The subsequent growth is sustained until 2001. However, the slowdown in the growth in median family income leading up to that point actually began in 1999. Median family income continued to decline during the whole first term of President George W. Bush, but the declines are smaller each year and by 2005, median incomes were growing again.

Looking at the last decade, both of these graphs support an interpretation of events that is favorable to President Bush: His administration inherited a declining economy with eroding family incomes and turned it around, despite the huge shock to the U.S. and world economies on September 11, 2001.

Family Income and GDP Growth in the U.S.

Recent posts