According to a Gallup survey, 51% of Americans say that they are in the middle or upper-middle class. Between 2000 and 2008, an average of 61% of Americans identified themselves to be in middle and upper-middle class. (Source: Gallup, April 28, 2015.)
In the survey, the percentage of Americans identifying themselves as working or lower class increased to 48% in 2015, compared to just 36% in mid-2008! On a relative change basis, this represents an increase of 33% in the number of Americans who believe they are now working or lower class compared to 2008! (Source: Ibid.)
Dear reader, as I have been writing for years now, this economic recovery is like no other in history. Yes, the stock market has gone back up. Luxury real estate has gone back up. The rich have gotten richer. But the poor and middle class have gotten poorer. You can’t have a real economic recovery if the middle class is not recovering.
Economic Growth? Not for the Middle Class
In order for the middle class to experience an economic revival, they need to see their incomes rise. And right now, their incomes are declining.
Between 2009 and 2013, real median household income in the U.S. economy declined 3.92%—from $54,059 to $51,939. (Source: Federal Reserve Bank of St. Louis, last accessed July 23, 2015.) We don’t know the 2014 numbers just yet. The U.S. Census Bureau releases them in September. Even if we assume incomes increased in 2014, they will not be anywhere close to the same level they were at in 2009.
And since the middle class is making less money, they are saving less.
In the second quarter of 2009, Americans were saving 7.2% of their disposable income. In the first quarter of 2015, they were only saving 5.4% of their income. (Source: Federal Reserve Bank of St. Louis, last accessed July 23, 2015.) The U.S. savings rate is still down from the Great Recession.
Declining incomes and declining savings do not lead to prosperity.
Can the U.S. Grow Without the Middle Class?
The list of troubles faced by middle class America continues to grow. Yes, their incomes and savings have declined, but they face many problems: most of the jobs created since the Great Recession have been in low-paying sectors; the retirement plans of the middle class are weak; and the cost of living is rising, furthering inflation.
The monetary policies implemented by the Federal Reserve over the past few years, as you’ve heard me say before, have helped the rich get richer. But they have punished retirees who are dependent on higher income from their safe investors (higher T-bill returns, higher returns from savings accounts). Lower returns on secure investments have forced people who shouldn’t be in the stock market to go into stocks. Now that the top is in for the markets and the next leg is down for stocks, retirees will be punished again.
The middle class, whose spending makes up about a third of U.S. gross domestic product (GDP), is hurt. Until the middle class is going out and shopping, don’t for a second believe there will be real economic growth in the U.S. economy. Expect slow and anemic growth going forward, if there is any at all.