December 2015 – ECONOMY – For the first time in over four decades, the number of middle class Americans is now smaller than the number of those Americans who are classified as either rich or poor. The middle class, the country’s one-time economic majority, is shrinking—fast. For a country that gets more than 70% of its economy from consumer spending, it’s just another sign the U.S. is on the verge of a major economic collapse. According to a recent report that looked at income data from 1971 and 2015, the U.S. middle class is no longer the majority. In fact, the U.S. middle class is now smaller than the combined number of rich and poor. (Source: “The American Middle Class is Losing Ground,” PEW Social Trends web site, December 9, 2015.)
Earlier this year, 120.8 million American adults were in middle-income households. This compares with 121.3 million in lower- and upper-income households combined, a major demographic shift that could have major economic implications. “Middle class” is defined as any three-person household that earned between two-thirds and double the median level. In 2015, a middle-class household would be one that earned between $42,000 and $126,000. I’m certain a household with three people working in a fast food restaurant would qualify as middle class, but their standard of living would be sharply different from a household making $126,000. Yet they’re all middle class!
So, under this spectacularly wide definition, the middle class is made up of slightly less than 50% of the U.S. adult population. In 1971, the middle-class made up 61% of the U.S. population. The U.S. middle class, the backbone of the world’s biggest economy, is getting smaller and smaller. This is, of course, in spite of the improving U.S. economy and miracle bull run that seems to keep on going. Or maybe it’s because of the Federal Reserve and its artificially low-interest-rate environment that has helped widen the gulf between the haves and have-nots.
In 2014, roughly half (49%) of all income earned in the U.S. went to upper-income households. In 1971, it was just 20%. At the same time, the number of people in the bottom end is getting larger. In 2015, 20% of U.S. adults were in the lowest income bracket; that’s up from 16% in 1971. Those Americans who are classified as middle class have seen their incomes fall since 2000. In 2014, the median income of middle class households was four percent less than in 2000 and thanks to the housing market crisis and the Great Recession of 2007–09, their median wealth (assets minus debts) fell by 28% from 2001 to 2013.
If retail stocks are a reflection of a U.S. economic collapse and the health of the middle class, then there’s something wrong on Main Street. One-time stalwarts are now in a death spiral. Sears Holdings Corporation’s (NYSE:SHLD) share price is down 85% since the heady days of 2007 and has been trending steadily lower since April 2010. This year alone, Sears’ share price has fallen by 36%. This year has not been kind to many big U.S. retailers. Macy’s Inc. (NYSE:M) has seen its share price tumble 42%, while Nordstrom, Inc. (NYSE:JWN) is down 22%. Even smaller, once-trendy U.S. retailers are getting hammered; Gap, Inc.’s (NYSE:GPS) share price has lost 35% of its value so far in 2015, Abercrombie & Fitch Co. (NYSE:ANF) is down 6.5%, and The Men’s Warehouse, Inc.’s (NYSE:MW) share price was crushed after reporting disappointing third-quarter results and a weak outlook, down 66% since January.
Admittedly, some retailers are doing OK, but the overall outlook for 2016 is not great. Plus, with a shrinking middle class, the long-term outlook is even bleaker for traditional brick-and-mortar retailers. What does the future of the U.S. retail landscape look like? If you have access to a computer or smart-phone, it looks really good. While big retailers took business away from smaller mom and pop stores in the 1970s, so, too, the Internet and technology companies will take business away from these big-box retailers. –Profit Confidential