Booming market is a bust for middle-class families

Not everyone is benefiting equally from our suddenly resurgent economy

Published June 3, 2013 6:25PM (EDT)

A board on the floor of the New York Stock Exchange                            (AP/Richard Drew)
A board on the floor of the New York Stock Exchange (AP/Richard Drew)

This originally appeared on Jared Bernstein's blog, On the Economy.

Last week brought numerous reports on how the U.S. economy is faring, with a general flavor of optimism in most of the reporting. Here are some of the key points, of all which are grounded in the data:

–home prices/sales/starts, the stock market, consumer confidence are all trending up, supporting the recovery;

–GDP and jobs are not breaking records, but they’re solidly positive;

–the sequester isn’t hurting growth as much as some folks thought it would.

Though I’d be cautious on that last point — the fiscal drag is backloaded and some of this stuff, like kids losing Head Start slots, doesn’t show up in this quarter’s GDP — the macro-economy has been consistently expanding since the second half of 2009, “corrections” to once overleveraged household and business balance sheets are largely completed, and the ever-essential housing market is reliably crawling off the mat.

But these kinds of stats are all a bit removed from what matters most to middle-income working families — what’s happening with those trends?

They’re a lot less favorable. The figure below shows four measures, all adjusted for inflation: the S&P stock market index, GDP growth, the earnings of middle-wage workers, and median household income. In each case, I’ve plotted the growth over the expansion that began in June 2009 through the most recent month of data availability, April 2013 (for GDP, it’s 2009q2-2013q1).

Now, I’m always careful to point out that stock market gains don’t just benefit the wealthy. There are pension funds and 401(k) accounts in that mix as well. But as shown here, the bulk of the market’s gains accrue to the rich: the top 1 percent holds over a third of equity market wealth, the top 10 percent holds about 80 percent; the bottom half holds well under 10 percent.

Also, those unsettlingly small bars on the graph that represent the wage and income trends of middle-income folks leave out any wealth effect from rising home values — the fact that when your house appreciates in value, you’re wealthier and research shows that tends to boost your spending by something like four cents on the dollar.

But those details are sideshows to the fact that trends in real paychecks and household incomes reveal a quite different story than all the good vibes from home starts, market indexes, GDP and so on. Sure, there’s a lag between macro and micro, and if the recovery accelerates, unemployment should come down more quickly and the tighter labor market will enforce a more equitable distribution of growth. But that’s not in the near-term cards, and those who want to understand how people are doing in the current economy must take account of all three of those bars in the figure, not just the first one.

S&P 500

Sources: S&P, Standard and Poor’s; GDP, BEA (2009q2-2013q1); Weekly earnings are for blue collar workers in manufacturing and non-managers in services, from BLS; Median household income is from Sentier Research, Figure 1 (since I was too cheap to spend the $25 bucks for the underlying data, the -4% in the figure is from eyeballing their HH index values in the relevant months).

By Jared Bernstein

Jared Bernstein joined the Center on Budget and Policy Priorities in May 2011 as a Senior Fellow. From 2009 to 2011, Bernstein was the Chief Economist and Economic Adviser to Vice President Joe Biden. Follow his work via Twitter at @econjared and @centeronbudget.

MORE FROM Jared Bernstein

Related Topics ------------------------------------------

Economy Gdp Home Owner Home Prices Middle-income On The Economy Recovery Sales Stock Market U.s. Economy