wallet? You'd be right about that. The standard of living for
Americans has fallen longer and more steeply over the past three years
than at any time since the US government began recording it five
decades ago.
Bottom line: The average individual now has $1,315 less in disposable
income than he or she did three years ago at the onset of the Great
Recession – even though the recession ended, technically speaking, in
mid-2009. That means less money to spend at the spa or the movies,
less for vacations, new carpeting for the house, or dinner at a
restaurant.
In short, it means a less vibrant economy, with more Americans
spending primarily on necessities. The diminished standard of living,
moreover, is squeezing the middle class, whose restlessness and
discontent are evident in grass-roots movements such as the tea party
and "Occupy Wall Street" and who may take out their frustrations on
incumbent politicians in next year's election.
What has led to the most dramatic drop in the US standard of living
since at least 1960? One factor is stagnant incomes: Real median
income is down 9.8 percent since the start of the recession through
this June, according to Sentier Research in Annapolis, Md., citing
census bureau data. Another is falling net worth – think about the
value of your home and, if you have one, your retirement portfolio. A
third is rising consumer prices, with inflation eroding people's
buying power by 3.25 percent since mid-2008.
"In a dynamic economy, one would expect Americans' disposable income
to be growing, but it has flattened out at a low level," says
economist Bob Brusca of Fact & Opinion Economics in New York.
To be sure, the recession has hit unevenly, with lower-skilled and
less-educated Americans feeling the pinch the most, says Mark Zandi,
chief economist for Moody's Economy.com based in West Chester, Pa.
Many found their jobs gone for good as companies moved production
offshore or bought equipment that replaced manpower.
Think life is not as good as it used to be, at least in terms of your
wallet? You'd be right about that. The standard of living for
Americans has fallen longer and more steeply over the past three years
than at any time since the US government began recording it five
decades ago.
Bottom line: The average individual now has $1,315 less in disposable
income than he or she did three years ago at the onset of the Great
Recession – even though the recession ended, technically speaking, in
mid-2009. That means less money to spend at the spa or the movies,
less for vacations, new carpeting for the house, or dinner at a
restaurant.
In short, it means a less vibrant economy, with more Americans
spending primarily on necessities. The diminished standard of living,
moreover, is squeezing the middle class, whose restlessness and
discontent are evident in grass-roots movements such as the tea party
and "Occupy Wall Street" and who may take out their frustrations on
incumbent politicians in next year's election.
What has led to the most dramatic drop in the US standard of living
since at least 1960? One factor is stagnant incomes: Real median
income is down 9.8 percent since the start of the recession through
this June, according to Sentier Research in Annapolis, Md., citing
census bureau data. Another is falling net worth – think about the
value of your home and, if you have one, your retirement portfolio. A
third is rising consumer prices, with inflation eroding people's
buying power by 3.25 percent since mid-2008.
"In a dynamic economy, one would expect Americans' disposable income
to be growing, but it has flattened out at a low level," says
economist Bob Brusca of Fact & Opinion Economics in New York.
To be sure, the recession has hit unevenly, with lower-skilled and
less-educated Americans feeling the pinch the most, says Mark Zandi,
chief economist for Moody's Economy.com based in West Chester, Pa.
Many found their jobs gone for good as companies moved production
offshore or bought equipment that replaced manpower.
In Royal Oak, Mich., Adam Kowal knows exactly how the squeeze feels.
After losing a warehouse job in Lansing, he, his wife, and their two
children have had little recourse but to move in with his mother. Now
working at a school cafeteria, Mr. Kowal earns 28 percent less than at
his last job.
He and his wife now eat out once a month instead of once a week, do no
socializing, and eat less expensive foods, such as ground chuck
instead of ground sirloin. "My mom was hoping her kids would lead a
better life than her, but so far that has not happened," says Kowal.
With disposable incomes falling, perhaps it's not surprising that 64
percent of Americans worry that they won't be able to pay their
families' expenses at least some of the time, according to a survey
completed in mid-September by the Marist Institute for Public Opinion.
Among those, one-third say their financial problems are chronic.
"What we see is that very few are escaping the crunch," says Lee
Miringoff, director of the Marist Institute in Poughkeepsie, N.Y.
Income loss is hitting the middle class hard, especially in
communities where manufacturing facilities have closed. When those
jobs are gone, many workers have ended up in service-sector jobs that
pay less.
"Maybe it's the evolution of the economy, but it appears large
segments of the workforce have moved permanently into lower-paying
positions," says Joel Naroff of Naroff Economic Advisors in Holland,
Pa. "The economy can't grow at 4 percent per year when the middle
class becomes the lower middle class."
He would get no argument from Jeff Beatty of Richmond, Ky., who worked
in the IT and telecommunications businesses for most of his career –
until he hit a rough patch. He and his wife are living on his
unemployment insurance benefits (which will run out in months), his
early Social Security payments, and her disability payments from the
Social Security Administration. Their total income comes to $30,000 a
year.
"Our standard of living has probably declined threefold," he says.
Mr. Beatty, who used to make a comfortable income, now anticipates
applying for food stamps. He and his wife have sold much of their
furniture, which they no longer need because they have moved into a
one-bedroom apartment owned by his sister-in-law.
Even people with college degrees are feeling the squeeze. On a fall
day, Hunter College graduate and Brooklyn resident Paul Battis came to
lower Manhattan to check out the Occupy Wall Street protest. He tells
one of the protesters that America's problem is the various free-trade
pacts it has approved.
Mr. Battis's angst over trade is rooted in the fact that two years ago
he lost his data-entry job with a Wall Street firm that decided to
outsource such jobs to India.
When he had the job, he made a comfortable income. Now his income is
sporadic, from the occasional construction job he lands. He used to
buy clothing from Macy's or other department stores. Now he goes to
Goodwill or Salvation Army stores. He has even cut back on taking the
city subways, instead riding his bicycle. Separated from his wife and
his 15-year-old daughter, he says, "Try making child support payments
when you don't have a regular income. I'm constantly catching up."
Even recently some Americans could tap the equity in their homes or
their stock market accounts to make up for any shortfalls in income.
Not anymore. Since 2007, Americans' collective net worth has fallen
about $5.5 trillion, or more than 8.6 percent, according to the
Federal Reserve.
The bulk of that decline is in real estate, which has lost $4.7
trillion in value, or 22 percent, since 2007. In Arizona, for example,
more than half of homeowners live in houses that are worth less than
their purchase prices, according to some reports.
Stock investments aren't any better. Since 1999, the Standard & Poor's
index, on a price basis, is off 17 percent. It's up 3.2 percent when
dividends are included, but that's a small return for that length of
time.
"This is really a lost decade of affluence," says Sam Stovall, chief
investment strategist at Standard & Poor's in New York.
Among those who have watched their finances deteriorate are senior citizens.
"Given the stock market, they are very nervous," says Nancy LeaMond,
executive vice president at AARP, the seniors' lobbying group. "They
want to keep their savings."
But Ms. LeaMond also notes that about 2 in every 3 seniors are
dependent not on Wall Street but on Social Security. The average
annual income for those over 65 is $18,500 a year – almost all of it
from Social Security, she says. "This is not a part of America that is
rich," she says.
At the same time, seniors are getting pinched in their pocketbooks.
"Our members are watching all the things they have to buy, especially
health-care products, go up in price," says LeaMond.
In Pompano, Fla., some stretched seniors end up at the Blessings Food
Pantry, which is associated with Christ Church United Methodist.
"We have quite a few grandparents who are raising their grandchildren
on a fixed income, feeding them and buying clothes for them when they
can't afford to do [that for] themselves," says Yvonne Womack, the
team leader.
Others, she says, are forgoing food to pay for their medical
prescriptions. "And then there is your ordinary senior whose Social
Security [check] has not gone up in the last several years, but food
and gasoline [prices] have skyrocketed," she says. (However, Social
Security checks will go up 3.6 percent in January.) The Blessings, she
notes, is now feeding 42 percent more people than last year. "We also
provide food you can eat out of a can," she says. "We do have seniors
who are living on the streets."
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