Middle class remains stuck

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(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:

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    Jill Schlesinger, CFP®, is the Emmy-nominated, Business Analyst for CBS News. She covers the economy, markets, investing and anything else with a dollar sign on TV, radio (including her nationally syndicated radio show), the web and her blog, "Jill on Money." Prior to her second career at CBS, Jill spent 14 years as the co-owner and Chief Investment Officer for an independent investment advisory firm. She began her career as a self-employed options trader on the Commodities Exchange of New York, following her graduation from Brown University.