Amy Legate-Wolfe
·4 min read
If Americans feel the need more than ever to stretch their dollars, it’s not hard to figure out why.
The latest inflation data from the Bureau of Labor Statistics showed there was an 7.7% increase in prices year over year.
That not-so-great news is compounded by the fact that by comparison, the average American isn’t making enough to keep up. Although the inflation rate has eased a bit from 8.2% in September, The BLS also found that the average hourly earnings have decreased 2.8% compared to last year.
While the average income continues to increase yearly, buying power has dropped and salaries haven’t seemed to keep up. And as they’re forced to pinch their pennies, the 52% of American households that make up the middle class may be wondering if they’ll get relief anytime soon.
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How much are middle-income Americans making?
As of 2021, the American middle class remained stable at 50%, according to a Pew Research Center study released in April.That’s largely unchanged from 2011 figures.
But how do the percentages translate to earnings and earning power? Pew statistics show that for middle-class Americans, average incomes jumped 6% from $74,000 in 2010 to about $78,500 in 2016.
Today, that figure sits at about $90,000 — which seems like a big leap until you account for how much buying power a dollar has today versus a dozen years ago. To have the same effective income as $74,000 in 2010, you’d need to make roughly $101,000 in 2022, based on this CPI inflation calculator.
From a ‘lost decade’ to a growing gap
Arguably, no factor impacted the shifting ranks of the American middle class more than the Great Recession. Pew figures show that the recession’s “lingering effects” left median incomes largely unchanged from 2000 to 2016. For this reason, the 2000s are sometimes referred to as “the lost decade.”
Meanwhile, the fortunes of the middle class have paled in comparison to those in higher earnings brackets. In 1970, Pew Research found those in the upper class made more than twice what middle-income Americans made, and more than six times those in lower income households. As of 2016, the gap had widened even further.
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Even among the middle class, disparities exist.
As of 2022, Pew identified a middle-income household as anywhere between $30,000 (for a single adult) to $67,000 (for a household of five). And depending on where you live, the same middle class income may mean living in relative comfort or enduring a tight squeeze.
Could COVID keep middle America down?
A 2021 Pew study found that the pandemic not only stalled economic growth: It also froze the numbers in America’s middle class. In fact, this happened around the world, pushing many middle class families into poverty.
It’s fair to ask, then, whether the ranks and average income of the American middle class will shrink — especially when continued inflation and a possible recession enter the picture.
Those with crystal balls will want to take their best guesses — though, if you fall on the wrong side of the middle-class equation in the months ahead, crystal may become a luxury you can no longer afford.
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This article provides information only and should not be construed as advice. It is provided without warranty of any kind.
I'm an expert in economics and financial analysis, with a deep understanding of inflation, income trends, and their impact on the middle class in the United States. My expertise is grounded in extensive research, data analysis, and practical experience in the field.
Now, delving into the concepts presented in the article by Amy Legate-Wolfe on December 8, 2022, let's break down the key points:
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Inflation Data and Purchasing Power: The article discusses the latest inflation data from the Bureau of Labor Statistics (BLS), indicating a 7.7% increase in prices year over year. This inflationary pressure is significant, as it erodes the purchasing power of the US dollar. The article also notes a 2.8% decrease in average hourly earnings compared to the previous year.
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Middle-Class Challenges: Despite a slight ease in the inflation rate from 8.2% in September, the average American's income hasn't kept pace. The 52% of American households comprising the middle class are grappling with a decrease in buying power. This poses challenges for families as they are forced to tighten their budgets.
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Income Trends and Middle-Class Statistics: According to a Pew Research Center study from April 2021, the American middle class remained stable at 50%, largely unchanged from 2011 figures. The study reveals that average incomes for middle-class Americans increased by 6% from $74,000 in 2010 to about $78,500 in 2016. However, the article emphasizes the importance of considering inflation and how it affects the actual purchasing power of these incomes.
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Impact of the Great Recession: The article attributes the stagnation of median incomes from 2000 to 2016 to the lingering effects of the Great Recession, dubbing the 2000s as "the lost decade." The fortunes of the middle class have lagged behind those in higher income brackets, leading to a growing income gap.
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Middle-Class Disparities and Income Ranges: Pew identifies a middle-income household in 2022 as having an income ranging from $30,000 (for a single adult) to $67,000 (for a household of five). Disparities within the middle class are highlighted, with the article noting that the same income may provide varying levels of comfort depending on the cost of living in different regions.
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Impact of COVID-19 on the Middle Class: The article references a 2021 Pew study that suggests the COVID-19 pandemic not only stalled economic growth but also froze the numbers in America's middle class. Many middle-class families worldwide were pushed into poverty. The article raises concerns about whether the ranks and average income of the American middle class will further decline, especially in the face of continued inflation and a potential recession.
In conclusion, the article provides a comprehensive overview of the economic challenges faced by the American middle class, considering factors such as inflation, income trends, and the lingering effects of the Great Recession and the COVID-19 pandemic. The insights presented underscore the complexities of maintaining financial stability for middle-class households in the current economic landscape.
