A Long, Steep Drop for Americans' Standard of Living
Think life is not as good as it used to be, at
least in terms of your wallet? You'd be right about that. The standard
of living for Americans has fallen longer and more steeply over the past
three years than at any time since the US government began recording it
five decades ago.Bottom
line: The average individual now has $1,315 less in disposable income
than he or she did three years ago at the onset of the Great Recession –
even though the recession ended, technically speaking, in mid-2009.
That means less money to spend at the spa or the movies, less for
vacations, new carpeting for the house, or dinner at a restaurant.
In
short, it means a less vibrant economy, with more Americans spending
primarily on necessities. The diminished standard of living, moreover,
is squeezing the middle class, whose restlessness and discontent are
evident in grass-roots movements such as the tea party and "Occupy Wall
Street" and who may take out their frustrations on incumbent politicians
in next year's election.
What
has led to the most dramatic drop in the US standard of living since at
least 1960? One factor is stagnant incomes: Real median income is down
9.8 percent since the start of the recession through this June,
according to Sentier Research in Annapolis, Md., citing census bureau
data. Another is falling net worth – think about the value of your home
and, if you have one, your retirement portfolio. A third is rising
consumer prices, with inflation eroding people's buying power by 3.25
percent since mid-2008.
"In
a dynamic economy, one would expect Americans' disposable income to be
growing, but it has flattened out at a low level," says economist Bob
Brusca of Fact & Opinion Economics in New York.
To
be sure, the recession has hit unevenly, with lower-skilled and
less-educated Americans feeling the pinch the most, says Mark Zandi,
chief economist for Moody's Economy.com based in West Chester, Pa. Many
found their jobs gone for good as companies moved production offshore or
bought equipment that replaced manpower.
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"The
pace of change has been incredibly rapid and incredibly tough on the
less educated," says Mr. Zandi, who calls this period the most difficult
for American households since the 1930s. "If you don't have the
education and you don't have the right skills, then you are getting
creamed."
Per
capita disposal personal income – a key indicator of the standard of
living – peaked in the spring of 2008, at $33,794 (measured as after-tax
income). As of the second quarter of 2011, it was $32,479 – almost a 4
percent drop. If per capita disposable income had continued to grow at
its normal pace, it would have been more than $34,000 a year by now.
The
so-called misery index, another measure of economic well-being of
American households, echoes the finding on the slipping standard of
living. The index, a combination of the unemployment rate and inflation,
is now at its highest point since 1983, when the US economy was
recovering from a short recession and from the energy price spikes after
the Iranian revolution.
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