Or We’ll Lose the Whole Middle Class
Economic recovery, but not for the “Invisible Americans”
by Wolf Richter
Wolf Street (September 20 2016)
Jim Clifton, Chairman and CEO at Gallup, who presides over endless surveys of American consumers and businesses and knows a thing or two about them, has a message for the media and the political establishment that seem to be clueless: this meme about the recovering economy – “It was even trumpeted on Page 1 of The New York Times and Financial Times last week”, he says – “I don’t think it’s true”
In an article posted on Gallup’s website, he made his case:
The percentage of Americans who say they are in the middle or upper-middle class has fallen ten percentage points, from a 61% average between 2000 and 2008 to 51% today.
Ten percent of 250 million adults in the US is 25 million people whose economic lives have crashed.
What the media is missing is that these 25 million people are invisible in the widely reported 4.9% official US unemployment rate.
Let’s say someone has a good middle-class job that pays $65,000 a year. That job goes away in a changing, disrupted world, and his new full-time job pays $14 per hour – or about $28,000 per year. That devastated American remains counted as “full-time employed” because he still has full-time work – although with drastically reduced pay and benefits. He has fallen out of the middle class and is invisible in current reporting.
And these “Invisible Americans”, as he calls them, are facing the “disastrous” emotional toll often associated with a sharp loss of household income. It hits “self-esteem and dignity”, and produces an “environment of desperation”. Even many American with good jobs and incomes are just “one degree” away from the misery of those with falling wages, or the underemployed or unemployed.
Clifton names three metrics that “need to be turned around or we’ll lose the whole middle class”:
1. According to the US Bureau of Labor Statistics, the percentage of the total US adult population that has a full-time job has been hovering around 48% since 2010 – this is the lowest full-time employment level since 1983.
2. The number of publicly listed companies trading on US exchanges has been cut almost in half in the past twenty years – from about 7,300 to 3,700. Because firms can’t grow organically – that is, build more business from new and existing customers – they give up and pay high prices to acquire their competitors, thus drastically shrinking the number of US public companies. This seriously contributes to the massive loss of US middle-class jobs.
3. New business startups are at historical lows. Americans have stopped starting businesses. And the businesses that do start are growing at historically slow rates.
“Free enterprise is in free fall – but it is fixable”, he says. It all depends on small businesses. They need to thrive again. They’re “our best hope” for the economy to pick up some speed. And once they’re thriving again, they can “restore the middle class”:
Gallup finds that small businesses – startups plus “shootups”, those that grow big – are the engine of new economic energy. According to the US Small Business Administration, 65% of all new jobs are created by small businesses, not large ones.
But small businesses as a group are not doing well. Over the past three decades, the US averaged nearly 120,000 more business births than deaths per year. But between 2008 and 2011, according to Census Bureau data, on average 420,000 businesses were born per year, while on average 450,000 died. That the core of the US job creation machine has been faltering is not a sign of a healthy or even a “recovering” economy.
Clifton’s sobering message – that a big part of American households and therefore consumers are still in serious disarray in part due to the problems small businesses are facing – appears to be getting totally lost among the media hype, including the deafening razzmatazz about the 5.2% jump in “household income”, reported last week by the Census Bureau, and widely misconstrued by the media.
This disarray is even worse, once it’s parsed, as the Census Bureau has done, by men and women. Because men’s median income, adjusted for inflation, is now lower than it had been in 1974! Read http://wolfstreet.com/2016/09/14/that-5-2-jump-in-household-income-nope-people-arent-suddenly-getting-big-fat-paychecks/.