A Blog by Jonathan Low


Aug 4, 2013

Summertime and the Living Aint Easy: Middle Class Malaise and the Affordability Gap

"Summertime and the livin' is easy; fish are jumpin' and the cotton is high. Daddy's rich and your momma' good lookin,' so hush little baby, don't you cry."

The lyrics of that song from the Gershwin brothers' Porgy and Bess captures the poignancy of a time of year when everything seems like it should be better, even when it isn't, for many.

The cruel irony of the episodic recovery reported to finally be improving the statistics about the economy, if not the actual lives many lead, is that it may be making things tougher in the short run by generating price hikes for many who were already finding it difficult. Rent and food price increases are rampant, especially in the sorts of urban areas where the kinds of jobs that middle class people are available.

In fact, median earnings for American workers have fallen 4 percent. So, in addition to the income gap, there is now a growing affordability gap which is the phrase being used to describe the difference between what the middle class earns and what it needs to maintain its lifestyle.

The primary problem is that the benefits of the recovery are falling almost exclusively on the upper echelons of the financial services and tech industries, leaving most of the rest of the western world's workforce struggling to stay in place and not fall behind.

The challenge for businesses and policy makers is figuring out how bad things have to get before middle class consumers, the engine of economic growth, become so beleaguered that their travails throw the economy back into recession. JL

Jim Tankersley reports in the Washington Post:

The economic recovery of summer 2013 is playing out in an all-too-familiar way for poor and middle-class Americans: Gas prices are up, growth is slowing, and there still aren’t nearly enough new jobs to employ the almost 12 million people seeking work.
An improving housing market and rising stock prices appear to have done little to increase the take-home pay of the typical U.S. worker. And while the economy continues to heal faster than that of almost any other Western nation, evidence remains strong that the recovery has done little to boost the fortunes of people in the vast economic middle.
Economic indicators released Thursday continue to show a mixed picture of the recovery — and certainly not one pointing to a surge in working-class incomes any time soon.
On the plus side, new claims for jobless benefits fell last week from the week before; economists stressed that seasonal factors could be driving the decline but said the overall trend suggests the economy could be on pace to add about 200,000 jobs this month. On the down side, the index of leading indicators — a broad measure of economic health — was unchanged in June, falling short of economists’ predictions.
The Labor Department reported this month that average earnings have barely grown faster than inflation over the past year. Data from spring show that median earnings — those of the worker smack in the middle of the middle class — have fallen 4 percent since the recession ended, after adjusting for inflation.
Researchers at the Federal Reserve Bank of San Francisco reported this week that wage growth across the economy is continuing to slow in the wake of the recession, in a way similar to the past two recessions but counter to previous recoveries in the 20th century. The researchers warned that wage growth is likely to decelerate “long after the unemployment rate has returned to more normal levels.”
Some housing analysts say the hot growth in prices in certain parts of the country, such as New York City and the San Francisco Bay area, is exacerbating an “affordability gap” that hurts the lower-income residents of those regions. Cameron Findlay, the chief economist for mortgage lender Discover Home Loans, says that lending is “on fire” in the “jumbo” section of the loan market, which finances more expensive homes, and that “below that range, you’re definitely going to see consumers start to struggle” with affording a home amid climbing mortgage rates.
In an interview this week, officials at one of the nation’s most powerful labor groups, the AFL-CIO, made little attempt to hide their frustration with the pace and nature of the recovery.
“It’s a pathetic recovery,” said Thea Lee, an economist and the union’s deputy chief of staff. “It really is extraordinary that four years ago we declared the recession over, but we’re not even within spitting distance of full employment.”
She accused Republicans of “basically glorying in the weak recovery” and the Obama administration of being “schizophrenic” on the issue: mixing calls for more jobs with proposals to reduce the budget deficit, which Lee said will weaken the economy.
Business groups remain displeased with the rate of growth, particularly as economists cut their forecasts for gross domestic product growth this year. Chad Moutray, the chief economist for the National Association of Manufacturers, said in an interview that the still-elevated unemployment rate is suppressing wage growth across the economy, and he lamented how manufacturers have shed jobs over the past several months. The bottom line in the economy, Moutray said, “is we’re not growing fast enough.”
The Organization for Economic Co-operation and Development warned Tuesday that the U.S. retains a persistently large group of long-term unemployed workers and said that lawmakers “should consider doing more to help these workers find suitable new jobs quickly, especially those groups most at risk of remaining jobless for a considerable period.”
Even policymakers pushing to enhance growth are facing accusations that they’re boosting the wealthy, not average workers. Federal Reserve Chairman Ben S. Bernanke was asked in a congressional hearing if the central bank’s monetary stimulus exacerbates income inequality.
“No, I don’t think so,” he said. “It maintains employment.”


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