Household income rose in 2023 for the first time since Covid, but there's a catch

Household incomes rose in 2023 for the first time since the start of the pandemic, signaling modest improvements to Americans’ financial well-being.

According to the Census Bureau, the average inflation-adjusted household income was $80,610 in 2023, a 4% increase from the previous year.

By comparison, average inflation-adjusted incomes declined by 2.3% between 2021 and 2022.

With the increase, household incomes are back around their pre-pandemic levels.

“We are back to the pre-Covid peak that we experienced,” said Liana Fox, an executive with the Census Bureau’s Social, Economic and Housing Statistics Division.

In 2023, households benefited from cooling prices and a reasonably strong labor market, which allowed their incomes to outpace inflation. The year before, Americans grappled with a generational surge in inflation as the Consumer Price Index (CPI) peaked at 9.1%.

Despite the improvement, the data suggests it took Americans four years to regain their pre-pandemic purchasing power. Over that period, certain inflation categories, such as housing, groceries, and insurance, have outpaced the broader CPI.

This has led some analysts to opine that Americans are really no better off today than they were before the pandemic.

“If things don’t change soon, the pain and pressure of inflation, rising cost of living, and soaring housing costs will lead to a significant reduction in purchasing power for Americans in nearly every occupation and industry,” said Nick Rizzo, a research analyst with MoneyWise.

The lingering effects of inflation mean households on the lower rungs of the income ladder have seen very little improvement in their standard of living.

The catch: Poverty levels were little changed

The Census Bureau report showed that the national poverty rate—which is adjusted for government assistance programs—rose to 12.9% in 2023 from 12.4% the year before.

Meanwhile, the so-called official poverty rate edged down slightly to 11.1% from 11.5%. The income threshold for the official poverty rate increased by 4.1% to $30,900 for a four-person household.

Taken together, the data suggests that national poverty levels were virtually unchanged compared to the year before.

In actual numbers, the Census Bureau estimates that nearly 40 million Americans live below the poverty line. Perhaps more concerning is that this figure doesn’t account for households that are Asset-Limited, Income-Constrained, and Employed (ALICE).

The Census Bureau estimates that these so-called ALICE households number in the 40-million range.

According to Columbia Business School professor Brett House, more Americans have fallen into the ALICE category since the pandemic, reflecting the growing gap between rich and poor.

Unlike high-income earners, Americans in the ALICE category are more likely to be strained by inflation since more of their income goes toward essential living expenses like food and rent.

By the very definition of ALICE, these households haven’t benefited from rising asset prices since they own very few financial assets or real estate.