While the Fed has long been focusing on the revenue part of the household income statement (which unfortunately has not been rising nearly fast enough to stimulate benign inflation in the form of nominal wages rising at the Fed’s preferred clip of 3.5% or higher), one largely ignored aspect of said balance sheet has been the expense side: after all, for any money to be left over and saved, income has to surpass expenses. However, according to a striking new Pew study while household spending has returned to pre-recession levels (the average household spent $36,800 in 2014) incomes have not.
Specifically, while the median income had fallen by 13% from 2004 levels over the next decade, expenditures had increased by nearly 14%. But nobody was more impacted than the one-third of households which the study defines as “low-income.” Pew finds that while all households had less slack in their budgets in 2014 than in 2004, lower-income households went into the red by over $2,300. Continue reading
A 2010 article that couldn’t be more relevant today:
Like a forgotten downtown billboard, Detroit proclaims a warning about the rest of America for any who will stop and look.
If ever an American city was a warning for the nation, it is Detroit. Its crumbling mansions, overgrown boulevards and abandoned factories drive a message home to those who will pay attention. We cannot afford to ignore this once-great city. Why? What killed Detroit is killing America.
Detroit used to be synonymous with wealth and prosperity. It was a city humming with big-finned cars and Motown rhythms. Factories churned out products that ended up on store shelves around the world. Full employment empowered high salaries, flourishing schools and manicured storefronts, with flashy neon lights lining the boulevards. Multiple generations of families shared the same streets and barbecues.
The American middle class, long the most affluent in the world, has lost that distinction.
While the wealthiest Americans are outpacing many of their global peers, a New York Times analysis shows that across the lower- and middle-income tiers, citizens of other advanced countries have received considerably larger raises over the last three decades.
After-tax middle-class incomes in Canada — substantially behind in 2000 — now appear to be higher than in the United States. The poor in much of Europe earn more than poor Americans. Continue reading