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Sentier Household Income Index for May -- 98.5

Estimation Methods and The Sentier Household Income Index (HII)

Overview of Methods

Our household income index permits monthly tracking of median annual household income before taxes. The index has been computed monthly beginning in January 2000. The base index value for January 2000 is 100.0. Each month the latest estimate of median household income is adjusted to reflect changes in prices since March 2000 and then seasonally adjusted to account for seasonal variations in the way households report their income in the monthly Current Population Survey (CPS). The median annual household income for each month is divided by the March 2000 median to compute the index.

Data have been compiled from each monthly CPS survey taken since January 2000 (as of May 2016, 196 surveys in total). Each of these surveys collected data for a nationally representative sample of more than 50,000 interviewed households and their members (approximately 130,000 per month). The survey collects the detailed information needed to determine the employment characteristics of all civilians age 16 years old and over and to compute the official unemployment rate. It also collects key demographic and social characteristics for all household members, including children.

Estimates of household income from the survey are based on a single question that asks respondents to report the total income received by the household during the 12-month period prior to the survey month. The definition of income used in the survey includes the following:

The household income estimates are based on a composite moving average. Each month 25 percent of the sample households are new while 75 percent were also interviewed in the previous month. As the household income question is asked only for the "new" households each month, statistics derived from the full sample represent a moving average covering the 4-month period prior to the interview month. The household index reflects all sample households. We have determined that estimates based solely on the 25 percent sample entering in a single month exhibit an unacceptable level of sampling variability.

The raw data collected for each household member in the survey must be aggregated and summarized at the household level in order to generate the household statistics underlying this analysis. Householders are identified in order to compute statistics that relate to characteristics of the householder. Counts of the number of household members, number of children, and number of earners are computed by examining each household member’s detailed information. Missing responses to the question on household income are imputed using statistical matching techniques in order to adjust for any nonresponse bias. Procedures for imputing missing responses are based on the same methodology used by the U.S. Census Bureau for the CPS Annual Social and Economic (ASEC) Supplement, the source for official estimates of the annual income, poverty, and health insurance coverage. There are some reporting differences when asking for total household income as compared to using the CPS ASEC supplemental questionnaire, which asks a detailed series of questions on the receipt of income during the previous calendar year. We have made adjustments to correct for bias caused by these differences.

The Consumer Price Index (CPI) for all urban consumers is used make adjustment for changes in prices where noted in the tables and text of the report.

The monthly median household incomes are seasonally adjusted before the houseold income index (HII) is computed in order to reduce seasonal differences in reporting of household income. Various factors may contribute to seasonal difference in the way households report their incomes in the CPS. Earlier studies by the Bureau of the Census have shown that reports of household income tend to rise as the survey month approaches the March tax-filing period. This trend, while apparent in surveys of the 1980’s and early 1990’s, is less pronounced in more recent years. Seasonal adjustments are made by the X-12-ARIMA software. This software was developed by the U.S. Census Bureau and is the same software used to create adjustment factors for all monthly employment and unemployment series released by the U.S. Bureau of Labor Statistics.

Quarterly Estimates Methodlogy

Our quarterly household income series is based on averages of monthly estimates of the number of households and median household incomes. In calculating the median household incomes for a quarter each monthly median is weighted by the number of households for the month. The estimated margins of error reflect the overlap of the CPS sample across months (sample households are interviewed in four consecutive months before leaving the survey). For any given quarter the household samples from adjoining months (e.g. March and March or March and May) contain about 75-percent of the sample households in common while those separated by a month (e.g. March and May) have about 50- percent of the sample households in common.

The median household income estimate for the same quarter, on year apart (YOY) have also been adjusted for changes in consumer prices. The medians for both quarters are presented in terms of the average of the monthly CPI-U’s for the most recent quarter.