This paper looks at the factors associated with household welfare and poverty and the movement of households into and out of poverty in Ethiopia. To do this, we specified an empirical model in which the dependent variables are the level and changes in real per adult consumption, the probability of being absolutely poor, and movement into and out of poverty. We employed simple ordinary least squares, logit/probit and multinomial logit methods of estimation with and without controlling for individual and community fixed effects (fixed-effect estimation). Using Young Lives Younger Cohort data, we found that the level and growth of consumption was highly dependent on households' initial level of consumption and wealth, indicating a relationship of dependence between earlier and later socio-economic status and showing that households in poor communities are trapped in poverty. The results also showed that past and more recent economic shocks were negatively related to people's welfare. Government support is crucial to lift poor households out of the poverty trap and protect households from shocks, so as to break the intergenerational transfer of poverty.