Household Income and GDP per Head 1977 – 2017

Figure 3_ Growth of median (and mean) household income and gross domestic product per head

What Does This Data Tell Us?

The first thing we notice is that disposable household income has more than doubled since 1977, when adjusted for inflation. This means that your typical family has more money left over each month, after paying for all necessary expenditure such as rent and groceries. In simple terms, we are much richer now than we were 40 years ago.

There’s also been a big change since the mid-1980s with regards mean disposable income, which began to move away from median disposable income and stay there. This means that the richer half of the population has got richer at a higher ratio than the poorer half. There’s been a lot of evidence higlighted recently suggesting that this is mostly due to the richest 10-20% of households earning more and more.

Also notice how the dips in the Gross Domestic Produce (GDP) figures highlight the UK recessions of the early 1980s, early 1990s and 2008/09. It’s interesting to see how disposable household income mirrors these dips, with a delay of a year or two. This shows that the effects of a recession take a while to filter through the economy, as companies try to ride out a bad period before freezing pay or letting go of staff. Some will have no choice but to go bust. When the first companies do go under, this will then have a knock-on effect on those companies that provided them with goods and services. This will in turn cause these companies to freeze pay, make staff redundant, or go bust. So the process continues all the way down the supply chain, taking effect on more and more people until the recession has completely passed through the economy.

If we compare this data to the FTSE 100 for the same period, we also notice some surprises.


source: tradingeconomics.com

The recessions of the 1980s and 1990s had little to no effect on the UKs largest companies, but The Great Recession of 2008/09 hit them hard. This is due to the fact that the largest companies have much more of a global presence than smaller companies, and so are relativly untouched by a recession which is restricted to their home country. However, when the global economy takes a downturn, they are effected much more seriously than those companies with mostly national trade, as evidenced by the big drop in the FTSE 100 index during the early 2000s recession, which mostly affected developed countries.

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