Wednesday, March 5, 2014

Nominal Income Expectations

We'd like to think that higher education operates in a vacuum, and that the demand for what we offer is mostly inelastic.  But if you've been to other posts on this blog, you know that family income adjusted for inflation has fallen since 2000.  You know that the number of high school graduates is changing demographically and shrinking in many parts of the country.  And you know that colleges continue to raise price irrationally.

Here's something else: The University of Michigan and Thompson Reuters have been asking people since at least 1976 what they expect to happen to their income in the next twelve months.  This chart is very intimidating at first, but use the filters to look at certain groups: Try, for instance, to see what percentage of people over time think their income will decrease.  Then add "stay the same" to see recent trends most adults haven't seen or don't remember.  (Note: Be sure to click "apply" to make the chart update; hover over a point to see a popup with details.) Things are not as gloomy as they were in 2009, of course, but they're still bad.

Is this a "Dead cat bounce" or an honest rebound in consumer confidence? And regardless, have universities learned their lesson?  Do we collectively understand that college is a four-year commitment on the part of families, and that making a commitment requires confidence?