Energy Poverty American Style

The term “energy poverty” is used to describe the 1.6 billion people in the developing world who lack access to electricity or the more than 2 billion who still rely on biomass as their primary source of energy. This phenomenon presents a significant barrier to economic growth in poor countries. But data released last week from the Census Bureau points to a new kind of energy poverty taking place here in the United States as the result of high oil prices and a weak economic recovery.

In their annual report on Income, Poverty, and Health Insurance Coverage in the United States, the Census Bureau found that the number of Americans living in poverty grew by 2.6 million to 46.2 million in 2010—the highest level recorded since the survey began more than 50 years ago (figure 1). Overall US population growth accounts for some of the increase in the number of poor Americans, but the poverty rate also spiked in 2010—from 14.3 percent to 15.1 percent of the total population—putting the United States within striking distance of poverty rates we haven’t experienced since the early 1960s.

Figure 1: America’s poverty problem

Figure 1

Source: Census and Rhodium Group estimates

Stagnant wage growth is to blame for much of the growth in America’s poverty rate. Indeed, the Census Bureau found that nominal income declined in 2010 by 0.7 percent. That was not quite as bad as the 1.1 percent annual decline we saw in 2009, but rising consumer prices last year made the drop in real income even worse. Unlike 2009, when consumer prices fell by 0.4 percent, softening the blow of smaller paychecks, the cost of living rose by 1.6 percent in 2010. As a result, real income fell by 2.3 percent last year, a three-fold increase over the rate of decline in 2009.

The Census Bureau report notes that this is not the first time real income has declined after the end of a recession. Indeed, six of the last seven US recessions have been followed by a year of flat or negative real income growth. But 2010 was worse than any post-recession year since the Census Bureau started keeping records, and that has a lot to do with changes in the global oil market.

Table 1 shows the year-on-year change in US GDP, real median household income, and oil prices for the first full calendar year following the past seven US recessions. For most of the post-war period, America accounted for such a large share of global oil demand that global oil prices fell when the US economy went into recession, and didn’t rise again until the US economy recovered. The exception was in 1980, when supply disruptions in the Middle East caused oil prices to outpace the US economic recovery and contributed to the double-dip recession in 1981.

 

Table 1: Annual change in GDP, household income, and oil prices in the first calendar year following US recessions

 

 


 

 

Recession

GDP

Income

Oil Prices

 

 


 

 

December 1969 – November 1970

+3.4%

+1.0%

+6.2%

 

 

November 1973 – March 1975

+5.4%

+1.7%

+4.9%

 

 

January 1980 – July 1980

+2.5%

+1.7%

+25.0%

 

 

July 1981 – November 1982

+4.5%

+0.7%

+9.0%

 

 

July 1990 – March 1991

+3.4%

+0.8%

+3.6%

 

 

March 2001 – November 2001

+1.8%

+1.2%

+4.7%

 

 

December 2007 – June 2009

+3.0%

+2.3%

+30.0%

 

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