World Economy

US Middle Class in Trouble

The middle class is stuck in neutral, if not outright disappearing.The middle class is stuck in neutral, if not outright disappearing.

The United States is often thought of as a country built upon the backbone of working- and middle-class Americans. But truth be told, the middle class is stuck in neutral, if not outright disappearing.

According to an analysis released by Pew Research Center earlier this year, 203 of the 229 major US metropolitan areas it surveyed between 2000 and 2014 showed a decline in middle-class families, NewsMax reported.

In other words, families are either ascending the rungs of the socioeconomic ladder into more specialized jobs with higher income, or they're falling into lower-income groups. This is a nationwide trend that's pretty much been ongoing for at least the past three decades.

What's really wrong with the middle class likely boils down to these seven issues.

1. Stagnant Wage Growth

One of the biggest challenges for middle-class families is they've watched their wages grow on a nominal basis but stay relatively stagnant on an inflation-adjusted basis. Based on data provided by the Bureau of Labor Statistics and interpreted by the Pew Research Center, nominal wages for average hourly workers jumped better than 700% between 1964 and 2014 to $20.67 an hour. However, when factoring in the effects of inflation over those 50 years, real wages grew by less than 8%.

2. High Levels of Debt

Another issue for middle-class families is that they're getting too liberal when it comes to their usage of credit.

A survey commissioned by the Federal Reserve every three years, known as the Survey of Consumer Finances, observed that the debt burden of the average middle-class household in 2013 was 122% of annual household income. Although this is down from a peak of more than 140% in 2010, it's nearly double the debt burden of American families in 1989.

High levels of debt can be a major concern for middle-class families, since high debt can divert dollars that should be saved for retirement to paying bills instead.

3. Historically Low Lending Rates

The Federal Reserve's interest-rate policy has been great news for existing and new homeowners looking to take advantage of great rates, and businesses that have used the access to cheap capital to expand their operations, hire, and even acquire.

Who hasn't particularly appreciated the Fed's monetary policy since December 2008 is the middle class. Though some middle-class families have benefited from low mortgage rates, the overall effect on "America's backbone" has been negative, with yields on bank CDs, savings accounts, checking accounts, and US Treasury bonds tracking near all-time lows.

Middle-class consumers have counted on the guaranteed income of interest-bearing assets for years, but they've been let down recently by nominal growth rates that are underperforming relative to inflation, leading to real money losses and reduced purchasing power.

4. Poor Savings Habits

Another bit of self-sabotage from those in the middle class is their inability to save a sufficient amount of their annual income.

According to the St. Louis Federal Reserve, the personal savings rate in the US as of July was a meager 5.7%. This is half of what the US savings rate was 50 years ago. However, this figure takes into account all workers.

5. Growing Income Inequality

Building a bit on the aforementioned point is that the income inequality between the upper-class and middle-class is widening in America.

The 2015 Credit Suisse Global Wealth Report found that while the middle class in the US has the highest total wealth of the 21 countries it individually examined, the US middle class ranked dead last of the 21 countries in terms of the total share of wealth held, with 19.6%.

6. Lingering Great Recession Woes

The middle class can also probably point to the lingering effects of the Great Recession for why they're stuck in neutral.

Home prices, which historically outpaced inflation by a very narrow margin between 1890 and 1997, surged in the decade between 1997 and 2007, only to come crashing down again. In many instances, the net wealth of middle-class families was predominantly derived from their equity in their primary residence. With home prices still well below their 2007 peak, the net worth of middle-class families has taken a hit.

Between 2000 and 2014, median income for middle-class households dipped by 4%. However, when taking into account growing debt, stagnant income, and falling home prices, the actual median wealth of American middle-class households dropped by 28% between 2001 and 2013.

7. Growing Reliance on Part-Time Work

The final issue for the middle class is that the opportunity to land a well-paying job is spotty, at best.

Based on data from the US Bureau of Labor Statistics, more than six million people in August 2016 were part-time workers for economic reasons. In layman's terms, these are people who work under 35 hours a week but aren't part-time by choice. They'd rather be full-time workers but can't seem to find a job to suit their needs and skills.

Though this figure has fallen from a peak of more than nine million during the Great Recession, we'd have to go back to 1993 to find the last time more than six million people were part-time for economic reasons.

If businesses continue to seek highly skilled workers, but those jobs are either isolated in certain parts of the country, or middle-class consumers don't have access to a college education to obtain the appropriate skills because of the rising cost of college, it makes landing a well-paying job very difficult.