Why such a tepid U.S. recovery? "It's the middle class, stupid," states F
inancial Times columnist Edward Luce.
The consensus of many economists that the American economy is on the upswing is wishful thinking, he writes.
"Economic forecasters have yet to internalize the fact that the U.S. economy has fundamentally altered. The purchasing power of the majority of Americans has not only stagnated since the recovery began five years ago — it has actually declined," Luce argues.
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According to Sentier Research, the median U.S. household income of $53,000 is 7.6 percent less in real terms than it was at the beginning of the 2008 recession.
Luce notes rising income and wealth inequality is compounding America's problem and called it "a central economic truth of our time."
"When most of the gains of growth go to a small slice of high earners at the top, little of it is spent," he said.
As an example, he noted sales of the 1 percent most expensive homes in the United States have jumped 21 percent in 2014, while sales of the other 99 percent of homes has actually declined by 7.6 percent.
"Here, in a nutshell, you have the U.S. economy. The total value of home sales has risen. But most people are not seeing it," he states.
He noted sales at LVMH, the luxury retailing conglomerate that includes Louis Vuitton and Bulgari, have been robust in 2014, while at Wal-Mart, the common man's shopping destination, revenues are down by 5 percent this year.
The struggles of the middle class are reflected in the fact that bonds have risen unexpectedly this year, as investors seek a refuge from an unpredictable future.
"The bond markets have grasped something that eludes many economists. We live in a confused world," Luce contends.
"Such sharp disparities mirror the confused signals from the asset markets — U.S. equity prices continue to do well, driven by optimism about corporate earnings growth, while U.S. Treasury bonds are pricing in Depression-level pessimism."
Luce's conclusion is that the U.S. middle class is hollowing out, even as the economy appears to grow.
For guidance, he suggests U.S. policymakers look north to Canada for ideas. There, he notes, Canadian GDP grew 1.2 percent in the first quarter, as opposed to contraction of 1 percent in the United States. And Canada had its harshest winter in 20 years.
"Canada happens to have a more robust middle class. There is far more to America's disappointing recovery than the weather," he claims.
A new industry study shows the number of middle-class Americans who can afford home ownership is falling in more cities.
The report from real estate research firm
Trulia concludes that in 20 of the top 100 largest metro area, the middle class are now frozen out of the home buying market.
Neil Gilbert, a professor of social welfare at the University of California, Berkeley, however, disputes studies showing the middle class is worse off than it was before the Great Recession. The data are being misinterpreted in many cases.
"The problem with the research showing middle-class stagnation is that it looks at market incomes, which exclude taxes, government transfers and adjustments for household size,"
Gilbert writes in an article for The Wall Street Journal.
"Market income is an accurate gauge of employment compensation but a misleading way to consider a family's financial resources. It overlooks the welfare state's enormous power to redistribute income."
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