Poverty trends

Four years into the current economic expansion, the official U.S. poverty rate (12.6 percent) appears to be fixed at nearly a full percentage point above its 2001 recession level (11.7 percent), according to the Census Bureau’s annual poverty statistics, which were released late last month. Indeed, for the past three years (2003-2005), despite the fact that the economy has expanded an average of 3.4 percent per year, the poverty rate has averaged 12.6 percent, stubbornly remaining above its recession-year level.

Overall, 37 million people were classified as poor last year. Of that total, 26 million were members of families, whose poverty rate was 10.8 percent. For a family of four last year, the official poverty level was $19,971. Reflecting a poverty rate of 21.1 percent, 10.4 million unrelated individuals (i.e., people who were not members of families) also fell below the poverty line. The black poverty rate was 24.7 percent. For whites, it was 10.6 percent. The Hispanic rate was 21.8 percent. Marital status was a major factor in poverty. Compared to the overall family poverty rate of 10.8 percent, for example, the subcategory of female-headed families (with no husband present) had a poverty rate of 31.1 percent. For non-Hispanic white, black and Hispanic families headed by women (with no husbands present), the poverty rates were 22.6 percent, 39.2 percent and 39 percent, respectively.

Because the official poverty rate excludes not only many forms of non-cash income, such as Medicaid health insurance and food stamps, but also the value of important assets, such as houses, critics have persuasively argued that the official rate overstates the real level of poverty in the United States. Moreover, historically, the spending by impoverished families and individuals has significantly exceeded their incomes; and this gap has widened in recent decades. Nevertheless, even if the absolute level of poverty is exaggerated, year-to-year changes in the rate over a short period of time (say, a decade or so) probably reflect accurate movements in both the direction of the rate and its relative impact. Indeed, even with the official rate’s shortcomings in mind, the White House favorably commented on the fact that “in 2005, 90,000 fewer people were living in poverty” compared to 2004.

Another trend worth noting is the fact that economic growth did not reduce the poverty rate, a development quite different from previous economic recoveries lasting four years or longer, during which the poverty rate had persistently declined.