The Wall Street Journal, that bastion of the liberal press <sarcasm>, has the story behind the squeeze on America’s middle class. In a nutshell the economy has rebounded nicely and consumer spending is up, but when you dig into the numbers you find that the spending is happening at the high and low end. Some interesting excerpts from the article:
Since 2009, average per household spending among the top 5% of U.S. income earners—adjusting for inflation—climbed 12% through 2012, the most recent data available. Over the same period, spending by all others fell 1% per household, according to Mr. Cynamon, a visiting scholar at the bank’s Center for Household Financial Stability, and Steven Fazzari of Washington University in St. Louis, who published their research findings last year.
The spending rebound following the recession “appears to be largely driven by the consumption at the top,” Mr. Cynamon said. He and Mr. Fazzari found the wealthiest 5% of U.S. households accounted for around 30% of consumer spending in 2012, up from 23% in 1992…
Revenue for such luxury hotel chains as St. Regis and Ritz-Carlton rose 35% last year compared with 2008, according to market research firm STR Inc. Revenues at midscale chains such as Best Western and Ramada were down 1%…
For the first time, U.S. builders last year sold slightly more homes priced above $400,000 than those below $200,000. As a result, the median price of new homes exceeded $280,000, a record in nominal terms and 2% shy of the 2006 inflation-adjusted peak.
Total sales last year, however, were up just 1% compared with 2013, and more than 50% below their average from 2000 to 2002, before the housing bubble…
There are some real issues with this kind of market, not the least of which is that it doesn’t do enough to create the kind of economic ripple that benefits everyone. For instance the fact that builders are focusing on fewer, but larger and more expensive houses definitely has a down side:
Homes are generally the biggest purchase Americans make. Housing dollars ripple through the economy by triggering spending on appliances, furniture and landscaping.
Fewer homes means fewer new buyers and that means fewer appliances, furniture and other household goods and services sold. In the end that means fewer jobs. Fewer new homes being built also means that demand for existing homes will rise, which leads to higher prices and thus even more would-be buyers are priced out of the market. That puts more demand on rentals which leads to higher rent; higher rent means less money to save each month which helps put a down payment ever further out of reach. In other words a very nasty cycle.
Of course markets are inherently cyclical and at some point in the future this will all turn around, but what’s become very apparent is that the Great Recession continues to have a negative effect on our country long after it officially ended. The middle class has been bearing the brunt of it, and it looks like people are starting to figure it out. It will be interesting to see if anyone in the political field figures out how to use that to their advantage; someone like, say, Elizabeth Warren.