A remarkable new study published by Ashlyn Still and Jonathan Spicer for Reuters reveals that fully 40% of Americans currently have a negative net income, which means that their living expenses exceed their annual incomes. In fact, according to this study, even the middle quintile of the population -- the average American -- is only barely above water financially, and the margin has collapsed.
A few other factoids are also telling: the rate of personal savings has fallen from a high of 11% in December of 2012 to just 3.1% in March of this year, which amounts to a drop-off of more than three-quarters over the last five years or so, including a drop of half within just the last three. The authors also call attention to how, historically, U.S. consumption growth is dominated by the top 40% of earners, while, by contrast, in the past few years, the bottom 60% of earners has accounted for the majority of consumption. Consumption makes up for over 70% of all economic activity in the United States and plays a critical role in economic growth. Meanwhile, serious credit card delinquencies and defaults have surged in recent years.
Put all these facts together and the picture you get is that, while the average middle class American is slightly above water financially, the economic significance of this fact is outweighed by the sheer volume of debt that the working class is accumulating. The poorer 40% of the population (to which I belong, incidentally) is exhausting its savings to pay debts and living expenses; a formula for survival that is obviously not sustainable. Eventually, the working class, which is now fueling the main driver of the economy -- consumption -- will not be able to sustain its consumption levels and have to scale back, which will have ripple effects across the economy, and especially for the barely-above-water middle class population. As the authors point out, what it all means is that "the nearly decade-long economic expansion may be more vulnerable to a further spike in gasoline prices or an escalation of trade conflicts" at present. In an unsustainable situation like this, little shocks can trigger a recession.
While the findings of this study explain a lot, really the telltale signs that (contrary to what you hear from the White House) all is not well with working America have been there already. In recent years, the United States has been wracked by growing epidemics of alcohol and opioid addiction, increasing rates of depression, anxiety, and suicide, and declining life expectancy. But now we can clearly see a big part of why.