Tuesday, March 5, 2013

Is the American Middle Class in the land of the living dead?

There are many good things to say about the recovery of the U.S. economy over the past two or three years -- Stock markets are hitting record highs, manufacturing industries are adding jobs, General Motors is back on its feet, banks are lending and the housing market is in a turnaround.
But many of us in the American Middle Class see our financial security slipping away.
Why? It's pretty simple --- wages have been stagnant in many industries and are not keeping up with the rising cost of basic living even though the over all inflation rate has been tame at about 2 percent a year. Those of us in retirement and watching our budgets are reminded of how tight things are every time we go to the grocery store, fill up with gas, eat out or plan a trip.
In a report from CNNMONEY.com we learn that:
- America's median (2012) household income has dropped by more than $4,000 since 2000, when adjusted for inflation.
- Families with young kids are struggling to afford childcare and save for the ever-climbing costs of college.
- People nearing retirement are scrambling to sock away funds so they don't have to work forever.
- A weak labor market means that employed Americans aren't getting the pay raises they need to keep up -- especially with big-ticket items such as health care eating away at their paychecks.
Full-time employment is among the casualties of the recession. The number of people working part-time for economic reasons has soared to nearly 8 million, up from 4.8 million five years ago, said CNNMoney.com.
Is the traditional middle class in danger of entering the land of the walking dead?
Economists say the answer is yes. Mostly because of stagnant wages. The recession is officially over, but the recovery is fragile, and its gains aren't evenly spread. For example, between 1993 and 2011, the top 1 percent of America's earners saw their income soar by 58 percent, while everyone else only got a 6 percent bump.That's making it even harder for most households to get ahead.
How do I personally know my hold on the middle class is in danger?
- I subscribe to fewer magazines and newspapers because I don't feel I can afford them.
- I shop at discount club stores instead of regular grocery stores.
- Thrift stores are a regular part of my clothes shopping adventures rather than a trip to Nordstrom..
- I give my kids less money.
- My friends are worried about retirement and whether their money will last.
- Everybody I know is on a budget.
According to a recent study by Rutgers University's Heldrich Center for Workforce Development, more than 40 percent of Americans say they are "very concerned" about job security. Fewer than one-third believe that economic conditions will improve in 2013 and an equal number think they could get worse, said the Rutgers' survey. Only 19 percent believe that job, career and employment opportunities will be better for the next generation. Six in 10 Americans believe that the nation's economy has undergone a permanent change.
A stock broker friend of mine, sees it this way: The World War II generation is dying off leaving their fortunes to baby boomers aging into their 60s, who in turn will live on that inheritance.
"There's not going to be a lot left for Gen Y and Gen X and not much investment consulting business for us since those kids won't have anything to invest and can't save on their own," he said mournfully.
The mortgage crisis "hollowed out" the middle class, said Tamara Draut, vice president of policy and research at Demos, a public policy research organization in the CNNMoney report. "Much of their wealth is tied into home values, but national home prices are still 29 percent below their mid-2006 high," according to S&P Case-Shiller.  Some homeowners have lost all their home equity and may never get it back.
Middle class households are about to take another big hit: health care costs. Since 2002, insurance premiums have increased 97 percent rising three times as fast as wages, according to Kaiser Family Foundation/Health Research & Educational Trust.  According to MarketWatch.com, employers can expect to see an acceleration of health care costs of as much as 8.5 percent. Higher health care insurance deductibles will eat into middle class incomes.
So what's ahead?
An analyst at Ferguson Wellman Capital Management suggested that the U.S. economy is in for a "long work-out" that may take years.  "There's a lot of pain beneath the surface," he said even though we've added back 5 million of the 8 million jobs we lost during the Great Recession.
Will there be a real turnaround any time soon? If anything, say the experts, we will continue to see an uneven recovery. "The middle class was always synonymous with economic security and stability... but now it's synonymous with economic anxiety," said CNNMoney.com.
Sorry, but there won't be a turnaround until there's real wage growth among us regular folk. That will be a challenge for employers who are paying more in operating costs and for employee health care services.
No turnaround in sight, yet.

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