Middle class remains stuck

(MoneyWatch) A flurry of corporate deals (Berkshire Hathaway and 3G bought H.J. Heinz Co. for $23B; American Airlines merged with US Airways to create the world's largest airline; and Comcast bought the remaining portion of NBC that it did not own) has some suggesting that the recovery has entered a new positive phase. That may true for Wall Street deal makers, but what about for consumers?

Apart from rising 401(k) balances (the average balance in a Fidelity Investments 401(k) plan rose 12 percent from 2011 to $77,300 at the end of last year), the average worker continues to struggle to gain ground after the Great Recession. The 2 percent increase in payroll taxes and a $0.40 rise at the pumps over the course of a month continue to keep a lid on both consumer spending and sentiment.

But what lurks beneath the surface is more insidious. Economist Emmanuel Saez of University of California, Berkeley has recently updated his important analysis of income inequality and the results are sobering. From 1993-2011, average real income growth increased by 13.1 percent, but the top 1 percent of earners captured nearly two-thirds of that growth.

Source: Emmanuel Saez

According to Saez, during the recovery from the Great Recession, which started in mid-2009, "real income per family grew modestly by 1.7% but the gains were very uneven. Top 1% incomes grew by 11.2% while bottom 99% incomes shrunk by 0.4%. Hence, the top 1% captured 121% of the income gains in the first two years of the recovery." The trend is likely to continue and income disparity will probably grow in 2012 and 2013. No wonder consumer sentiment indicators remain stuck at low levels. Retirement plan growth aside, a two-decade trend is tough to absorb for Americans who still have a long way to go before the effects of the Great Recession dissipate.

One area that appears to be helping moods a bit is the housing sector. While prices are still down by about 30 percent from the peak, real estate bottomed last year and is slowly crawling back from the abyss. Reports on January housing activity and sales will begin this week, which may show a pause in the action after a mild December. Data on inflation are likely to show a tick-up in prices. Still, inflation remains muted, which provides the Fed plenty of cover to keep greasing the wheels of the economy with easy money. Minutes from the last Fed meeting are expected to underscore the weak labor market and the slow growth economy.

-- DJIA: 13,981 down 0.08 percent on week, up 6.7 percent on year

-- S&P 500: 1,519, up 0.1 percent on week, up 6.5 percent on year (7th consecutive week of gains)

-- NASDAQ: 3,192, down 0.06 percent on week, up 5.7 percent on year

-- March Crude Oil: $96.41

-- April Gold: $1,609.50

-- AAA nat'l avg. price for gallon of regular gas: $3.69 (up $0.40 from month ago)

THE WEEK AHEAD:

Mon 2/18: President's Day - ALL U.S. MARKETS CLOSED

Tues 2/19:

Dell

10:00 Housing Market Index

Weds 2/20:

8:30 Housing Starts

8:30 Producer Price Index

2:00 FOMC Minutes

Thurs 2/21:

AIG, Wal-Mart, Hewlett-Packard, Nordstrom

8:30 Weekly Claims

8:30 Consumer Price Index

10:00 Existing Home Sales

10:00 Philadelphia Fed Survey

10:00 Leading Indicators

Fri 2/22:

[NickL30]

$80,000 is the average amount in a 401k?? That amount would barely last ONE year for a single person

[NickL30]

Amazing that everyone I see has the latest smartphone, designer clothing, nearly new SUV's and seems to have unlimited amount of money to throw around..

[sandiegopete]

The middle class does not provide the big money to elected officials so what happens to them is of no consequence to them. We will continue to see the upper class accumulated more wealth while the lower classes continue to lose buying power. That is a certain recipe for an economic slide. That may be why the upper class is investing their money in emerging markets like the Peoples' Republic of China or sequestering it in countries like Switzerland, the Cayman Islands and The Bahamas.

With the continued reduction middle and lower class income vis-a-vis the cost of comsumer goods and the continued reduction of social service progarams that provide basis needs for the poorest in the population we can only expect the United States economy to recede to a level closer to the preferred emerging market economies while those economies rise toward the level of the United States.

Globalization means all people of the world will have the same opportunites. That means less opportunity for the people in the currently high level economies and more opportunity for the people in the lower level economies. I am not saying that is good or bad. It is just fact.

[GhettoSkulls]

So, no Obama expansion?? LOL ! ! ! !

[funken_A]

the entire foundation of a capitalistic nation is the prosperity of the working classes.

Tax breaks at the top of the economic pyramid do not trickle all the way down to the bottom. Therefore tax breaks at the top actually rob even more future tax revenues since that money the top saved is not all pushed back down low to the workers where it can rise up through the entire economic pyramid and exponentially collect taxes as it rises step by step back to the top where raw materials banking and manufacturing reside.

If corps and wallstreet are unwilling to push money down low so it can circulate, then the government must tax, and use that new revenue to stimulate job creation via infrastructure projects. That very same infrastructure by which all wealth is built and maintained upon. The problem is greed at the top is starving the very capitalistic society that they depend upon to survive.

Our country is being run into the ground trying to protect the wealth at the top, and that same wealth at the top is hell bent on destroying the very systems that make it all possible, perverting our government, an dour society, and manipulating all of us, while feeling entitled to it all.

[stopkillingourwilderness]

It is also not true that the "housing recovery" is benefiting middle-income people, since hundreds of thousands (millions?) of them lost their homes and hundreds of thousands (millions?) more are unable to purchase the lower-cost homes now because 1% are buying them up to rent them out, expanding their short and long-term wealth at the expense of the middle class yet again. This was all part of the plan...

Buying an affordable house that would appreciate in value was the primary pathway to prosperity for the middle classes from the 1940s through 2003 or so, with only a few hiccups that most people were able to weather. Since then the bankers and investors have HUGELY profited from the misery and sacrifices of the middle classes and decimated that one chance people have at seeing some wealth.

Ignoramuses keep screeching "socialist" at Obama, who is well to the right of Reagan, to prevent any policies that would return America to its prosperous period when the 1% paid up to 91% in income taxes and universities were affordable, and businesses were thriving - not because they were allowed to pollute and exploit, but because workers were committed to the success of the enterprise because they were well compensated.

[rwsmith29456]

Prices are going to go up while we on fixed incomes have to soak up the difference. The shame is how many jobs in the U.S. will be minimum wage jobs.

[rwsmith29456]

Prices are going to go up while we on fixed incomes have to soak up the difference. The shame is how many jobs in the U.S. will be minimum wage jobs. I'll have to look up levels over the years

[hypnotoad72]

We know.

The sad part is, as more rely on 401k plans for retirement, which will get cut every time a big stock selloff occurs, with social security being thrown under the bus, the more seniors will be put out in the cold. Never mind younger generations seeing the sheer mess...

[ccb5508]

the middle class got the shaft when taxes went up on small business owners who would've either hired more people, or given current employees raises-- not only that, he raised taxes on the middle class as well--

[hypnotoad72]

Assuming the small businesses aren't put under thanks to excessive competition, and/or the big companies artificially lowering prices... amongst other considerations...

How many small businesses do you know of?

I used to know two - they did PC support and supplies sales. They don't exist any longer. Others will fall as well. Everything technology is doing is constricting, automating, and replacing. If a machine can do it at no cost, forget trying to compete with that. Sorry to segue into one tangent from another...

...but this isn't as one-sided as you want it all to be. You're caught in the same mindset, which is just a downward spiral. A "race to the bottom" in a way. What happens when the bottom is reached?