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There Really Is No Middle Class Any Longer

There Really Is No Middle Class Any Longer

Authored by Lance Roberts via The Epoch Times,

There was a time when a large portion of Americans…

Published

7 months ago

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There Really Is No Middle Class Any Longer

Authored by Lance Roberts via The Epoch Times,

There was a time when a large portion of Americans belonged to the “middle class.” It meant you could afford a decent living standard, such as owning a house and a car and had savings in the bank. When “baby boomers” reminisce about the “good ole days,” they are referring to when being middle-class was normal.

However, the American middle class has continued to contract over the past five decades. According to Pew Research, the share of adults who live in middle-class households fell from 61 percent in 1971 to 50 percent in 2021.

The shrinking of the middle class is accompanied by an increase in the share of adults in the upper-income tier, which increased from 14 percent in 1971 to 21 percent in 2021. At the same time, there was an increase in the share who are in the lower-income tier, from 25 percent to 29 percent. These changes have occurred gradually, as the share of adults in the middle class decreased in each decade from 1971 to 2011, but then held steady through 2021.

The Census Bureau clearly shows the problem in the “mean household income data” through 2021.

Source: Census Bureau Chart: Real Investment Advice.com

That dotted black line is the most important. As with the PEW Research data, looking at incomes alone obfuscates the most important part of income analysis. The question is, how much income it takes to maintain a “middle-class” lifestyle, or rather, what does it take to buy a house and a car and feed two kids?

Most importantly, and what is often not included in the analysis, is the standard of living gets “paid for” on an “after-tax” basis. When we include taxation, it becomes clear that roughly 80 percent of America is failing to support the “middle-class” lifestyle.

Source: Census Bureau Chart: Real Investment Advice.com

As we discussed recently, Harvard Business Review noted: “Besides a booming labor market, exceptionally strong household balance sheets help keep spending high. Households’ net worth is far higher than pre-COVID for every single income quintile, providing some buffer to the headwinds of inflation and dour consumer sentiment.”

Again, it is a true statement that household net worth has increased since the COVID lockdown lows. However, household net worth is predominately held by the top 10 percent of income earners, leaving the bottom 90 percent fighting over the remaining 30 percent of the wealth.

Source: St. Louis Federal Reserve Chart: Real Investment Advice.com

More Debt Isn’t A Choice

Debt is not a choice for most “middle-class” Americans.

I recently discussed “Recession Fatigue” that is plaguing more individuals, according to a BankRate.com survey. To wit: “When broken down by generation, younger adults, or Gen Zers, are more likely to experience ‘recession fatigue’ than millennials, Gen Xers, and baby boomers. In the report, ‘recession fatigue’ is primarily afflicting younger generations, leaving them unprepared to face a recession. Such data certainly flies in the face of media reports of households having ‘strong financial balance sheets.’”

With the Federal Reserve focused on combatting inflation by tightening monetary policy, the financial pressures on households will continue to increase. Given already high levels of “unpreparedness” for a recession, such approaches leaves a majority of families dependent on additional debt to make ends meet.

“According to the latest New York Federal Reserve report, credit card debt surged by $46 billion in the second quarter. As shown above, such is not surprising as consumers struggled to maintain their standard of living. The 13 percent annualized increase in new debt was the largest in more than 20 years. Moreover, aggregate limits on cards marked their most significant increase in the last decade.”

Source: St. Louis Federal Reserve Chart: Real Investment Advice.com

With the pandemic-driven savings now spent, 60 percent of Americans say they are living paycheck-to-paycheck. While consumers can supplement their disposable incomes with debt to offset rising inflationary pressures, this is not a long-term solution. The chart below, which requires a brief explanation, shows the problem clearly.

Between 1959 and 1990, individuals could sustain their inflation-adjusted standard of living with only incomes and savings. There was roughly a $4,700 surplus yearly as households had very low debt levels. However, beginning in 1990 and accelerating following the Financial Crisis in 2008, households required an increasing level of debt to “fill the gap” between what income and savings could afford and the cost of the current living standard. You will notice a brief spike in 2020-2021 as “stimmy checks” hit household bank accounts. However, that surplus has reversed to the deepest deficit on record.

Source: St. Louis Federal Reserve Chart: Real Investment Advice.com

As the “wealth gap” continues to widen between those in the top 10 percent of income earners and everyone else, the ability to maintain a “middle-class” lifestyle becomes more challenging.

The Road To Serfdom

A recent U.S. News article outlined the many forces that shape an individual’s economic class and their views of where they rank.

“When asked how they identify their social class, 73 percent of Americans said they belonged to the middle or working classes, according to an April 2022 survey from Gallup. Fourteen percent identified themselves as an upper-middle class and 2 percent categorized themselves as upper class. In determining their social class, people often don’t just think about income, experts say, but other factors, including education, location, and family history.”

However, statistics suggest that if 89 percent of surveyed individuals identify as middle to upper-class, that only leaves 11 percent of the population at the other end. However, income, debt, and net worth statistics clearly show that this is not the case.

The reality is that middle-class America continues to shrink as the rich-get-richer and poor-get-poorer. The rich can invest, save, and use very little debt to sustain their living standard, while the poor rely on debt, making long-term prosperity an impossible goal.

Furthermore, as the peasants demand “more free stuff” from the government, such requires more debt and higher taxes. Those demands then divert more capital away from productive investment leading to slower economic growth. As growth slows, businesses shift to the lowest labor costs or automation, lowering income growth for domestic workers. Such leads to more demands for “free stuff” from the government, and the cycle intensifies, pushing more of the middle class downward.

The share of annual incomes between the bottom 80 percent and the top 5 percent is evidence of that wealth transfer from the middle class.

Source: Census Bureau Chart: Real Investment Advice.com

The road to serfdom is paved with good intentions.

After decades of piling on increasing debt levels to generate economic growth, the damage to economic growth is becoming more visible. As shown, economic growth trends are already falling short of both previous long-term growth trends.

Chart: Real Investment Advice.com

The end game of too much debt, combined with an aging demographic, is the “deflationary disaster” apparent in Japan’s economy.

Of course, Japan doesn’t have a middle class any longer, either.

Tyler Durden Tue, 11/01/2022 - 11:00

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International

Costco Tells Americans the Truth About Inflation and Price Increases

The warehouse club has seen some troubling trends but it’s also trumpeting something positive that most retailers wouldn’t share.

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1 hour ago

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May 28, 2023

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Costco has been a refuge for customers during both the pandemic and during the period when supply chain and inflation issues have driven prices higher. In the worst days of the covid pandemic, the membership-based warehouse club not only had the key household items people needed, it also kept selling them at fair prices.

With inflation -- no matter what the reason for it -- Costco  (COST) - Get Free Report worked aggressively to keep prices down. During that period (and really always) CFO Richard Galanti talked about how his company leaned on vendors to provide better prices while sometimes also eating some of the increase rather than passing it onto customers.

DON'T MISS: Why You May Not Want to Fly Southwest Airlines

That wasn't an altruistic move. Costco plays the long game, and it focuses on doing whatever is needed to keep its members happy in order to keep them renewing their memberships.

It's a model that has worked spectacularly well, according to Galanti.

"In terms of renewal rates, at third quarter end, our US and Canada renewal rate was 92.6%, and our worldwide rate came in at 90.5%. These figures are the same all-time high renewal rates that were achieved in the second quarter, just 12 weeks ago here," he said during the company's third-quarter earnings call.

Galanti, however, did report some news that suggests that significant problems remain in the economy.

Costco has done an incredibly good job at holding onto members.

Image source: Xinhua/Ting Shen via Getty Images

Costco Does See Some Economic Weakness

When people worry about the economy, they sometimes trade down when it comes to retailers. Walmart executives (WMT) - Get Free Report, for example, have talked about seeing more customers that earn six figures shopping in their stores.

Costco has always had a diverse customer base, but one weakness in its business may be a warning sign for its rivals like Target (TGT) - Get Free Report, Best Buy (BBY) - Get Free Report, and Amazon (AMZN) - Get Free Report. Galanti broke down some of the numbers during the call.

"Traffic or shopping frequency remains pretty good, increasing 4.8% worldwide and 3.5% in the U.S. during the quarter," he shared.

People shopped more, but they were also spending less, according to the CFO.

"Our average daily transaction or ticket was down 4.2% worldwide and down 3.5% in the U.S., impacted, in large part, from weakness in bigger-ticket nonfood discretionary items," he shared.

Now, not buying a new TV, jewelry, or other big-ticket items could just be a sign that consumers are being cautious. But, if they're not buying those items at Costco (generally the lowest-cost option) that does not bode well for other retailers.

Galanti laid out the numbers as well as how they broke down between digital and warehouse.

"You saw in the release that e-commerce was a minus 10% sales decline on a comp basis," he said. "As I discussed on our second quarter call and in our monthly sales recordings, in Q3, big-ticket discretionary departments, notably majors, home furnishings, small electrics, jewelry, and hardware, were down about 20% in e-com and made up 55% of e-com sales. These same departments were down about 17% in warehouse, but they only make up 8% in warehouse sales."

Costco's CFO Also Had Good News For Shoppers

Galanti has been very open about sharing information about the prices Costco has seen from vendors. He has shared in the past, for example, that the chain does not pass on gas price increases as fast as they happen nor does it lower prices as quick as they sometimes fall.

In the most recent call, he shared some very good news on inflation (that also puts pressure on Target, Walmart, and Amazon to lower prices).

"A few comments on inflation. Inflation continues to abate somewhat. If you go back a year ago to the fourth quarter of '22 last summer, we had estimated that year-over-year inflation at the time was up 8%. And by Q1 and Q2, it was down to 6% and 7% and then 5% and 6%," he shared. "In this quarter, we're estimating the year-over-year inflation in the 3% to 4% range."

The CFO also explained that he sees prices dropping on some very key consumer staples.

"We continue to see improvements in many items, notably food items like nuts, eggs and meat, as well as items that include, as part of their components, commodities like steel and resins on the nonfood side," he added.

  

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Government

‘Kevin Caved’: McCarthy Savaged Over Debt Ceiling Deal

‘Kevin Caved’: McCarthy Savaged Over Debt Ceiling Deal

Update (1345ET): The hits just keep coming for Speaker Kevin McCarthy, as angry Republicans…

Published

3 hours ago

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May 28, 2023

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'Kevin Caved': McCarthy Savaged Over Debt Ceiling Deal

Update (1345ET): The hits just keep coming for Speaker Kevin McCarthy, as angry Republicans have been outright rejecting the debt ceiling deal which raises it by roughly $4 trillion for two years, doesn't provide sticking points sought by the GOP.

In short, Kevin caved according to his detractors.

Some Democrats aren't exactly pleased either.

"None of the things in the bill are Democratic priorities," Rep. Jim Himes (D-CT) told Fox News Sunday. "That's not a surprise, given that we're now in the minority. But the obvious point here, and the speaker didn't say this, the reason it may have some traction with some Democrats is that it's a very small bill."

*  *  *

After President Biden and House Speaker Kevin McCarthy (R-CA) struck a Saturday night deal to raise the debt ceiling, several Republicans outright rejected it before it could even be codified into a bill.

Here's what's in it;

  • The deal raises the debt ceiling by roughly $4 trillion for two years, and is consistent with the structure of budget deals struck in 2015, 2018 and 2019 which simultaneously raised the debt limit.
  • According to a GOP one-pager on the deal, it includes a rollback of non-defense discretionary spending to FY2022 levels, while capping topline federal spending to 1% annual growth for six years.
  • After 2025 there are no budget caps, only "non-enforceable appropriations targets."
  • Defense spending would be in-line with what Biden requested in his 2024 budget proposal - roughly $900 billion.
  • The deal fully funds medical care for veterans, including the Toxic Exposure Fund through the bipartisan PACT Act.
  • The agreement increases the age for which food stamp recipients must seek work to be eligible, from 49 to 54, but also includes reforms to expand who is eligible.
  • Claws back "tens of billions" in unspent COVID-19 funds
  • Cuts IRS funding 'without nixing the full $80 billion' approved last year. According to the GOP, the deal will "nix the total FY23 staffing funding request for new IRS agents."
  • The deal includes energy permitting reform demanded by Republicans and Sen. Joe Manchin (D-WV)
  • No new taxes, according to McCarthy.

Here's McCarthy acting like it's not DOA:

Yet, Republicans who demanded deep cuts aren't having it.

"A $4 trillion debt ceiling increase?" tweeted Rep. Andrew Clyde (R-GA). "With virtually none of the key fiscally responsible policies passed in the Limit, Save, Grow Act kept intact?"

"Hard pass. Hold the line."

"Hold the line... No swamp deals," tweeted Rep. Chip Roy (R-TX)

"A $4 TRILLION debt ceiling increase?! That's what the Speaker's negotiators are going to bring back to us?" tweeted Rep. Dan Bishop (R-NC). "Moving the issue of unsustainable debt beyond the presidential election, even though 60% of Americans are with the GOP on it?"

Rep. Keith Self tweeted a letter from 34 fellow House GOP members who are committing to "#HoldTheLine for America" against the deal.

"Nothing like partying like it’s 1996. Good grief," tweeted Russ Vought, President of the Center for Renewing America and former Trump OMB director.

In short:

Tyler Durden Sun, 05/28/2023 - 11:30

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Government

“Hard Pass”: Here’s What’s In The Debt Ceiling Deal Republicans Are About To Nuke

"Hard Pass": Here’s What’s In The Debt Ceiling Deal Republicans Are About To Nuke

After President Biden and House Speaker Kevin McCarthy (R-CA)…

Published

6 hours ago

on

May 28, 2023

By

"Hard Pass": Here's What's In The Debt Ceiling Deal Republicans Are About To Nuke

After President Biden and House Speaker Kevin McCarthy (R-CA) struck a Saturday night deal to raise the debt ceiling, several Republicans outright rejected it before it could even be codified into a bill.

Here's what's in it;

  • The deal raises the debt ceiling by roughly $4 trillion for two years, and is consistent with the structure of budget deals struck in 2015, 2018 and 2019 which simultaneously raised the debt limit.
  • According to a GOP one-pager on the deal, it includes a rollback of non-defense discretionary spending to FY2022 levels, while capping topline federal spending to 1% annual growth for six years.
  • After 2025 there are no budget caps, only "non-enforceable appropriations targets."
  • Defense spending would be in-line with what Biden requested in his 2024 budget proposal - roughly $900 billion.
  • The deal fully funds medical care for veterans, including the Toxic Exposure Fund through the bipartisan PACT Act.
  • The agreement increases the age for which food stamp recipients must seek work to be eligible, from 49 to 54, but also includes reforms to expand who is eligible.
  • Claws back "tens of billions" in unspent COVID-19 funds
  • Cuts IRS funding 'without nixing the full $80 billion' approved last year. According to the GOP, the deal will "nix the total FY23 staffing funding request for new IRS agents."
  • The deal includes energy permitting reform demanded by Republicans and Sen. Joe Manchin (D-WV)
  • No new taxes, according to McCarthy.

Here's McCarthy acting like it's not DOA:

Yet, Republicans who demanded deep cuts aren't having it.

"A $4 trillion debt ceiling increase?" tweeted Rep. Andrew Clyde (R-GA). "With virtually none of the key fiscally responsible policies passed in the Limit, Save, Grow Act kept intact?"

"Hard pass. Hold the line."

"Hold the line... No swamp deals," tweeted Rep. Chip Roy (R-TX)

"A $4 TRILLION debt ceiling increase?! That's what the Speaker's negotiators are going to bring back to us?" tweeted Rep. Dan Bishop (R-NC). "Moving the issue of unsustainable debt beyond the presidential election, even though 60% of Americans are with the GOP on it?"

Rep. Keith Self tweeted a letter from 34 fellow House GOP members who are committing to "#HoldTheLine for America" against the deal.

"Nothing like partying like it’s 1996. Good grief," tweeted Russ Vought, President of the Center for Renewing America and former Trump OMB director.

In short:

Tyler Durden Sun, 05/28/2023 - 11:30

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