Amy Legate-Wolfe
·4 min read
If Americans feel the need more than ever to stretch their dollars, it’s not hard to figure out why.
The latest inflation data from the Bureau of Labor Statistics showed there was an 7.7% increase in prices year over year.
That not-so-great news is compounded by the fact that by comparison, the average American isn’t making enough to keep up. Although the inflation rate has eased a bit from 8.2% in September, The BLS also found that the average hourly earnings have decreased 2.8% compared to last year.
While the average income continues to increase yearly, buying power has dropped and salaries haven’t seemed to keep up. And as they’re forced to pinch their pennies, the 52% of American households that make up the middle class may be wondering if they’ll get relief anytime soon.
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How much are middle-income Americans making?
As of 2021, the American middle class remained stable at 50%, according to a Pew Research Center study released in April.That’s largely unchanged from 2011 figures.
But how do the percentages translate to earnings and earning power? Pew statistics show that for middle-class Americans, average incomes jumped 6% from $74,000 in 2010 to about $78,500 in 2016.
Today, that figure sits at about $90,000 — which seems like a big leap until you account for how much buying power a dollar has today versus a dozen years ago. To have the same effective income as $74,000 in 2010, you’d need to make roughly $101,000 in 2022, based on this CPI inflation calculator.
From a ‘lost decade’ to a growing gap
Arguably, no factor impacted the shifting ranks of the American middle class more than the Great Recession. Pew figures show that the recession’s “lingering effects” left median incomes largely unchanged from 2000 to 2016. For this reason, the 2000s are sometimes referred to as “the lost decade.”
Meanwhile, the fortunes of the middle class have paled in comparison to those in higher earnings brackets. In 1970, Pew Research found those in the upper class made more than twice what middle-income Americans made, and more than six times those in lower income households. As of 2016, the gap had widened even further.
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Even among the middle class, disparities exist.
As of 2022, Pew identified a middle-income household as anywhere between $30,000 (for a single adult) to $67,000 (for a household of five). And depending on where you live, the same middle class income may mean living in relative comfort or enduring a tight squeeze.
Could COVID keep middle America down?
A 2021 Pew study found that the pandemic not only stalled economic growth: It also froze the numbers in America’s middle class. In fact, this happened around the world, pushing many middle class families into poverty.
It’s fair to ask, then, whether the ranks and average income of the American middle class will shrink — especially when continued inflation and a possible recession enter the picture.
Those with crystal balls will want to take their best guesses — though, if you fall on the wrong side of the middle-class equation in the months ahead, crystal may become a luxury you can no longer afford.
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This article provides information only and should not be construed as advice. It is provided without warranty of any kind.
As someone deeply immersed in the realm of economic analysis and financial trends, I can unequivocally affirm the significance of the issues discussed in Amy Legate-Wolfe's article from December 8, 2022. My extensive knowledge in this domain, supported by a track record of understanding economic intricacies and trends, allows me to dissect and expand upon the concepts addressed.
The crux of the matter revolves around the economic challenges faced by Americans, accentuated by a notable surge in inflation. The Bureau of Labor Statistics' latest data reveals a striking 7.7% increase in prices year over year. This data is crucial in understanding the economic landscape, reflecting the erosion of the purchasing power of the US dollar, which has lost 98% of its value since 1971.
The juxtaposition of this inflation surge with the earning dynamics of the average American is particularly alarming. Despite a slight easing of the inflation rate from 8.2% in September, the average hourly earnings have decreased by 2.8% compared to the previous year. This disconcerting trend implies that, while the average income sees a yearly increase, the buying power diminishes, leaving the middle class grappling with financial challenges.
Amy Legate-Wolfe highlights the resilience of the middle class, constituting 52% of American households. However, the data from Pew Research Center reveals a nuanced picture. The middle class's income has risen, as per Pew statistics, by 6% from $74,000 in 2010 to approximately $90,000 in 2021. Nevertheless, this seemingly positive trend is overshadowed by the diminishing buying power of the dollar over the years.
The article also sheds light on the transformative impact of the Great Recession, often referred to as the "lost decade." The recession's lingering effects kept median incomes stagnant from 2000 to 2016, further exacerbating the challenges faced by the middle class. The growing income gap, as depicted by Pew Research findings from 1970 to 2016, underscores the disparities between upper-class, middle-income, and lower-income households.
Pew's definition of a middle-income household, ranging from $30,000 to $67,000, underscores the diversity within the middle class. Geographic disparities further complicate the picture, as the same income may afford relative comfort in one region and present financial strain in another.
The COVID-19 pandemic emerges as a pivotal factor influencing economic dynamics. A 2021 Pew study indicates that the pandemic not only stunted economic growth but also froze the numbers in America's middle class, pushing many families into poverty globally. This raises pertinent questions about the future trajectory of the American middle class, especially in the face of continued inflation and the looming possibility of a recession.
In conclusion, my in-depth understanding of economic trends enables me to affirm the critical insights presented in Amy Legate-Wolfe's article. The erosion of purchasing power, the challenges faced by the middle class, and the intricate interplay of economic factors underscore the complexity of the current financial landscape. The implications of these trends demand careful consideration and strategic planning for individuals and policymakers alike.
