Category The Economy
by Rex Nutting
A lot of people say they are deeply puzzled by the slow recovery in the U.S. economy. They look at the 9+% unemployment rate and the mediocre growth in national output, and they scratch their heads and wonder: Where is the boom that inevitably follows a deep bust, such as we experienced in 2008 and 2009?
But there is no mystery. What other result would you expect from the financial ruin of the once-great American middle class?
And make no mistake, the middle class has been ruined: Its wealth has been decimated, its income isn’t even keeping pace with inflation, and its faith in the American economy has been shattered. Once, the middle class grew richer each year, grew more comfortable, enjoyed a higher living standard. It was real progress in material terms.
But that progress has been halted and even reversed. In some respects, the middle class has made no progress in a generation, or two.
This isn’t just a sad story about a few losers. The prosperity of the middle class has been the chief engine of growth in the economy for a century or more. But now our mass market is no longer growing. How could it? The middle class doesn’t have any money.
There are a hundred different ways of looking at the economy, and a million different statistics. But if you wanted to focus on just one number that explains why the economy can’t really recover, this is the one: $7.38 trillion.
That’s the amount of wealth that’s been lost from the bursting of housing bubble, according to the Federal Reserve’s comprehensive Flow of Funds report. It’s how much homeowners lost when housing prices plunged 30% nationwide. The loss for these homeowners was much greater than 30%, however, because they were heavily leveraged.
According to The Consumer Reports Index for July, by the Consumer Reports National Research Center, the economy is showing broad improvements in the condition, behavior and expectations of consumers. Though showing improvement, problems remain, including the proportion 16% of Americans that were unable to afford medical bill or medications, or 8.9% who have lost or have reduced health care coverage, well above levels seen in 2009. A worrisome development is a rise in Americans’ homes going into foreclosure in the past 30 days.
The Consumer Reports Employment Index numbers show job creation increased to 51.1, its highest level since April 2009. The Employment Index has pointed to employment growth in three of the last four months. In July 7.8% of Americans started a new job versus 5.7% that lost their job.
Consumer spending across index categories rose in July, particularly in the area of personal electronics and major home appliances. Per capita retail spending was up slightly for July ($274), reflecting June activity, from the prior month ($234).
The June Consumer Reports Trouble Tracker Index measuring financial difficulties faced by consumers in the past 30 days, worsened, rising to 63.5 from 53.0 in May. The most troubling increase is in missed mortgage payments, which reached 3.9%, its highest level since tracking began in April 2009. The latest numbers show consumers have taken a step back facing increases in financial difficulties and a soured employment picture, says the report.
Some of the key findings include:
In June, more consumers reported difficulty in affording medical bills or medications versus the prior month,and faced lost or reduced healthcare coverage
* The Employment Index has dropped, pointing to an increase in the ranks of the unemployed, at least temporarily. The decline was led by the proportion of Americans that lost their jobs in the past 30 days
* Despite the high job losses posted in June, 7.4% of Americans reported starting a job in the past 30 days, well above May, and achieved its highest level recorded since April 2009.
* Consumers have scaled back their interest in shopping as well. The past 30-Day Retail Index for June, reflective of May activity, is 10.8, unchanged from the prior month
* May’s next 30-Day Retail Index, reflective of planned purchases for June, is down slightly from the prior month. Per capita spending for the index categories in the past 30 days was $234, down slightly fromay ($248)
The Consumer Reports Index report comprises five key indices: Sentiment, Trouble Tracker, Stress, Retail and Employment. Here are the key findings:
Richard Storey, chief strategy officer for M&C Saatchi, London, suggests that recession is discussed as if it were a singular phenomenon, and that consumers have taken for granted the notion that there is one single, inevitable and all enveloping global crisis. News headlines tend to report macro trends, making bleak reading: slowing economy, falling house prices, rising food and fuel costs, or decreased consumer spending.
The problem, he says, is macroeconomics that would have us believe that the recession is a macro phenomenon with a single, reasonably predictable outcome, but understanding the dynamics that lay beneath these conditions could identify more interesting and effective recession strategies for businesses.
M&C Saatchi‘s ‘Reacting to Recession’ study uncovers the attitudes and behavior adopted by different groups of consumers and finds eight consumer typologies with distinct approaches to spending and economizing. Understanding and adapting to each segment presents opportunities for businesses, says the report.
Through a program of qualitative and quantitative segmentation, the study separated different consumer typologies. Each has adopted a different predominant behavior or ‘strategy’ to cope financially with the downturn and it is this behavior that defines each grouping:
Crash Dieters… 26%
Treaters … 12