The American Middle Class - progress and statistics

[WendyBG]

The Macro economy depends on the foundation of a strong middle class. Upper class people may spend a lower proportion of their income on consumer goods and services and lower class people don’t have much money.

The U.S. middle class has been shrinking but that’s mostly because more people entered into the upper income range between 1970 and 2023. In more good news, the median middle class income grew significantly (in 2023 dollars).

The State of the American Middle Class

The State of the American Middle Class

Who is in it and key trends from 1970 to 2023

By Rakesh Kochhar, Pew Charitable Trust, May 31, 2024

The share of Americans who are in the middle class is smaller than it used to be. In 1971, 61% of Americans lived in middle-class households. By 2023, the share had fallen to 51%, according to a new Pew Research Center analysis of government data.

As a result, Americans are more apart than before financially. From 1971 to 2023, the share of Americans who live in lower-income households increased from 27% to 30%, and the share in upper-income households increased from 11% to 19%.

Notably, the increase in the share who are upper income was greater than the increase in the share who are lower income. In that sense, these changes are also a sign of economic progress overall…

The median income of middle-class households increased from about $66,400 in 1970 to $106,100 in 2022, or 60%. Over this period, the median income of upper-income households increased 78%, from about $144,100 to $256,900. (Incomes are scaled to a three-person household and expressed in 2023 dollars.)… [end quote]

I see this as a good news story for the growth of the Macro economy even though the share of total income to the middle class has dropped relative to the upper class. The pie is growing overall and the middle class income is growing in absolute terms.

Wendy

[intercst]

I"m not sure I understand this “analysis”. There is only 20% of the population in each quintile of the income distribution. You can’t get more people into the top 20%, you can only throw more money and tax benefits at them.

Here’s a good graph of this phenomenon. Note that the top 20% and especially the top 5% went almost asymptotic in 1980 – I wonder what happened then? I’m very grateful that I picked up on this by about 1985 or so and shifted my focus to personal financial management rather than working uncompensated overtime in the hopes of promotion. {{ LOL }}

Reminds me of the college president that got roasted years ago when he said his goal was to get more students into the top half of the class. {{ LOL }}

intercst

[eldemonio]

@WendyBG

I see this as a good news story for the growth of the Macro economy even though the share of total income to the middle class has dropped relative to the upper class. The pie is growing overall and the middle class income is growing in absolute terms.

Thanks for sharing.

If the middle income group’s share of total household income is plunging, doesn’t that indicate that the middle class is not doing well?

Also - Upper income households median income shot up 78%, far exceeding gains for both middle income and lower income households.

I’m having difficulty seeing this as good news for a strong middle class. I’ll be the first to admit, I’m a glass is half-empty kind of guy. What am I missing?

[Leap1]

@WendyBG

As a result, Americans are more apart than before financially. From 1971 to 2023, the share of Americans who live in lower-income households increased from 27% to 30%, and the share in upper-income households increased from 11% to 19%.

That leaves 81% without a raise in real terms for several decades. The lower income pay rates were murdered.

[WendyBG]

@eldemonio

I’m having difficulty seeing this as good news for a strong middle class. I’ll be the first to admit, I’m a glass is half-empty kind of guy. What am I missing?

As an investor, I’m most interested in the GDP and profitability of companies because that directly impacts stock and bond prices. I’m a glass half-full kind of gal. The substantial increases in median income of both the middle and upper classes support the thesis of a growing economy.

Wendy

[Leap1]

The stat is something like an average of 2.5% real growth between 1981 and 2020. Considering the rise in debt to real GDP ratio that is a complete failure as we offshored factory production.

That now is in reverse.

[jaagu]

@eldemonio

I’m having difficulty seeing this as good news for a strong middle class. I’ll be the first to admit, I’m a glass is half-empty kind of guy. What am I missing?

You are correct that this is not good news for the middle class. Wendy is using smoke and mirrors to fool us into believing the middle class is doing well.

Jaak

[jaagu]

@WendyBG

As an investor, I’m most interested in the GDP and profitability of companies because that directly impacts stock and bond prices. I’m a glass half-full kind of gal. The substantial increases in median income of both the middle and upper classes support the thesis of a growing economy.

Wendy

Most people do not make their living by investing on the stock and bond market. Most people have jobs for a living. Their middle class salaries are not keeping up with upper class salaries. So your economics is geared to retired people who want to make some money in stock and bond market.
Jaak

[intercst]

@jaagu

Most people do not make their living by investing on the stock and bond market. Most people have jobs for a living. Their middle class salaries are not keeping up with upper class salaries. So your economics is geared to retired people who want to make some money in stock and bond market.

Yes, 70% of the US Economy is consumer spending. People in the bottom 80% of the income distribution spend more of their earnings. There’s no shortage of savings and investment capital. What’s lacking is consumer demand.

We’d all be wealthier if more money was going to the bottom 80%. There’s a multiplier of about 5 on consumer spending.

intercst

[Leap1]

@intercst

We’d all be wealthier if more money was going to the bottom 80%. There’s a multiplier of about 5 on consumer spending.

We are only wealthier if the factory production is our own. That is under threat by ejits.

[tjscott0]

Yet I see this article:

Middle-class Americans are struggling: "Gasping for air"

Middle-class Americans say they are struggling financially even amid reports of an economy that is growing and a labor market that appears to offer jobs aplenty, a poll revealed on Tuesday.

Sixty-five percent of Americans whose incomes are 200 percent above the national poverty line expressed pessimism that their financial struggles will improve over the course of their lifetime, according to a poll from the National True Cost of Living Coalition, a statement of which was shared with Newsweek. In 2024, the federal poverty line was at a little over $15,000.

This group of middle-class Americans constitutes those with high school diplomas and graduate degrees and is spread across blue- and white-collar workers who live in both rural and urban America. While they may be able to afford the basics, these Americans struggle to plan and save for the future.

Forty percent told pollsters that they cannot contemplate their daily economic life beyond their upcoming pay while close to half say that they don’t have $500 put aside for contingencies. They are also worried about the cost of housing, the cost of child care, education and debt.

The survey comes at a time when the economy appears to have overcome the effects of high inflation and elevated borrowing costs that have made loans for things like homes, cars and business investment expensive. The unemployment rate has been historically low, under 4 percent for more than two years with jobs seemingly available for anyone who wants one. Meanwhile, the economy expanded by 1.3 percent to begin the year on the back of consumer spending.

Now some of this fear is self-inflicted. US consumers are spending like there is no tomorrow.

Consumers Will Continue Spending In 2024

The real surprise was continued spending gains in 2023. Most of the reasons for last year’s growth will continue over into 2024, but at a slower pace.

Graphics show how Americans' total credit card debt reached record high

Credit Card Debt Statistics for 2024 | The Motley Fool

• UTILIZATION & INTEREST UP: Credit card utilization rates rose to 30% in 2023, while average APR for interest-bearing accounts climbed to 22.75% as of the first quarter of 2024.

Credit card delinquencies are surging

The flow of credit card debt moving into delinquency hit 8.9% in the first quarter at an annualized rate, compared with an 8.5% rate the previous quarter and 5.87% at the end of 2023. In fact, the percentage of credit card balances in serious delinquency climbed to its highest level since 2012.

[Hawkwin]

@intercst

"Im not sure I understand this “analysis”. There is only 20% of the population in each quintile of the income distribution. You can’t get more people into the top 20%, you can only throw more money and tax benefits at them.

You would probably understand it if you read the link. To quote:

Middle-income households are defined as those with an income that is two-thirds to double that of the U.S. median household income, after incomes have been adjusted for household size. Lower-income households have incomes less than two-thirds of the median, and upper-income households have incomes that are more than double the median. When using American Community Survey (ACS) data, incomes are also adjusted for cost of living in the areas in which households are located.

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It should be obvious you can’t measure progress if all you are doing is looking at Quintiles since the numbers in each bucket will be essentially equal. The way to measure movement is to do it in the manner that Pew did in the OP.

The distribution from Median and how that changes is the way to view this. Not Quintiles.

[Hawkwin]

@eldemonio

If the middle income group’s share of total household income is plunging, doesn’t that indicate that the middle class is not doing well?

Not necessarily. It can (and in this case does), simply mean that the upper income households are doing significantly better.

@eldemonio

What am I missing?

Think of this as your normal bell curve distribution:

In this case, the change in the distribution of people has resulted in more people moving to the right (more income) of the median than to the left (less income). The bell curve has flattened. That is a demonstrably good thing.

Something more like this (not my pic):

[intercst]

@Hawkwin

It should be obvious you can’t measure progress if all you are doing is looking at Quintiles since the numbers in each bucket will be essentially equal. The way to measure movement is to do it in the manner that Pew did in the OP.

Is the middle-class making progress if half the money they’re paying for healthcare is being “skimmed off” to anti-competitive behavior that benefits Private Equity and other members of the top quintile? Middle-class incomes are rising, but the scam and skim built into the system means they’re getting less for each dollar spent. You only see that if you look at quintiles. The Pew analysis makes it look like the middle class is doing OK, when they’re not.

You really need to be in the Top 5% with lightly-taxed investment income or inherited wealth to feel like you’re getting ahead. Wage & salary income continues to be a loser’s game, tax-wise.

But I agree with Wendy’s sentiment. If all you care about is your stock portfolio value, strip mining the bottom 80% of the income distribution is one way to increase your bottom line.

intercst

[Hawkwin]

@intercst

Is the middle-class making progress if half the money they’re paying for healthcare is being “skimmed off” to anti-competitive behavior that benefits Private Equity and other members of the top quintile?

In other words, you can’t argue against the facts presented in the OP so you instead turn to a Red Herring.

Red Herring

A Red Herring is an irrelevant point brought up to divert attention from the main issue. Stay focused and recognize when others try to steer away from the topic.
Example: When discussing education reform, an opponent mentions unrelated tax policy.

[intercst]

@Hawkwin

In other words, you can’t argue against the facts presented in the OP so you instead turn to a Red Herring.

Red Herring

A Red Herring is an irrelevant point brought up to divert attention from the main issue. Stay focused and recognize when others try to steer away from the topic.
Example: When discussing education reform, an opponent mentions unrelated tax policy.

Tax policy and lack of anti-trust enforcement is causing most of the problem. I know you don’t like the analysis, but that doesn’t mean it’s not true.

Most people don’t understand the unfathomably large benefit they’ll receive once they move from wage & salary income to the “leisure class tax regime” of investment income and inherited wealth.

The middle-class is taxed too high and scammed too much relative to the Top 5%. {{ LOL }}

intercst

[Hawkwin]

@intercst

Tax policy and lack of anti-trust enforcement is causing most of the problem. I know you don’t like the analysis, but that doesn’t mean it’s not true.