TIME

Here’s a New Way the Ultra-Wealthy Are Hurting America

Mmmmmoney: Get a grip; it's just paper
KAREN BLEIER; AFP/Getty Images

They're the only ones with money. What they're doing with it is the problem

More than five years into an economic recovery, a lot of Americans still don’t feel like they’ve made up the ground lost since the last recession, never mind getting ahead. As it turns out, the wealthiest Americans feel the same way. That’s a problem for the rest of us because they’re pretty much the only ones who have any money to spend these days, and when they don’t spend, the entire economy slows to a crawl.

The math isn’t hard to figure out: Consumer spending makes up about 70% of GDP (it was 71% in 2012, according to the Bureau of Labor Statistics), and the richest 20% of Americans are responsible for roughly 40% of consumer spending, according to Pam Danziger, president of Unity Marketing, a company that studies the luxury market. So when that top tier pulls back, it has outsized repercussions.

“That’s smart for them, but it’s certainly not good for the economy,” Danziger tells Bloomberg in a recent article. She calls this segment the HENRYs, which stands for “high earners, not rich yet.” These people pull down a decent paycheck, but they might not have the kind of home equity, investment portfolio or other markers of net worth to feel truly rich.

This might sound a little ridiculous; after all, we’re talking about households with incomes of around $111,000, compared to a median household income in the United States of just under $52,000 in 2013.

But as social scientists Mark Rank and Thomas Hirschl point out in an NPR article, just because you crack that top income tier in one year doesn’t mean you’ll stay in that coveted bracket. Maybe you lose your job or switch to a lower-paying but less stressful job. Maybe you or your spouse stops working for a while to raise kids or provide caregiving for an elderly parent. These are all pretty typical reasons for income to fall, but they gnaw at the confidence of these high earners. And many of these families in coastal cities like New York or San Francisco where the cost of living — especially housing — is so high that they’re still just treading water, even a six-figure income.

“The rich often think they’re poor,” chief equity strategist for Wells Fargo Funds Management John Manley tells Bloomberg.

This adds up to a dynamic that just isn’t sustainable, some economists say. “As of February 2015, core retail sales per person still stood 14 percent below their pre-recession trend, costing retailers $51 billion in February 2015 alone,” a March report by the Center for American Progress warns. Instead of focusing on the rich, it says, policymakers and companies should seek ways to shore up the struggling middle class and restore their earning power.

 

TIME Money

Americans Are Optimistic About the Economy Again

Money
David M. Elmore—Getty Images/Flickr RF George Washington

Middle-income America hasn't been this upbeat in years

The days might still be short and gray in much of the country, but when it comes to money and finances, Americans today have a sunnier outlook than we have in a long time.

A new Gallup survey on how Americans feel about our standard of living hit the study’s highest-ever level since the organization began tracking the metric seven years ago.

Every month, Gallup asks Americans if they’re satisfied with their standard of living and if they think that standard is going up or down, then calculates the answers into a single-number index. In December, that number was at 50 — an all-time high. By comparison, the index was at 14 back in October and November of 2008 when the Great Recession was at its worst.

In another all-time high, 81% of respondents say they’re satisfied with their current standard of living, a jump of 12 points since hitting a recession-era low in late 2008.

And we’re even more optimistic about the future. Today, Gallup finds more than six in 10 Americans say it’s “getting better” when asked about their standard of living — the highest-ever recorded in response to this question, and almost double the one-third of Americans who selected this answer back in October 2008, a record low.

“People’s outlook for their standard of living going forward has improved much more than their current satisfaction with it,” Gallup says.

In a second recent survey, the America Saves campaign finds that our collective willingness and ability to save is significantly higher than it was last year immediately after the holidays.

“[This] suggests that Americans are now feeling better about their financial condition,” Stephen Brobeck, a founder of America Saves and executive director of the Consumer Federation of America (the nonprofit behind America Saves), said in a statement.

The America Saves data show this greater interest in and ability to save is driven primarily by households with an annual income of less than $75,000.

“Our new data suggest that low- and middle-class Americans are feeling more optimistic about their financial situation now than a year ago,” Brobeck says.

In its analysis, Gallup suggests that freer spending, perhaps helped along by low gas prices, could be contributing to our collective optimism. The America Saves data offers clues that this could be the case: Compared to a year ago, the income bracket reporting the biggest jump in how effectively they’re able to save money is households earning less than $25,000.

“Instead of being distracted by heavy holiday spending and debts, they are . . . interested and active saving today,” Brobeck says.

TIME Autos

Americans Bought a Lot Of New Cars In May

Chrysler Fiat Announces Jeep Brand Will Anchor Company Overhaul
Bill Pugliano—Getty Images The 2014 Jeep Cherokee undergoes assembly at the Chrysler Toledo North Assembly Plant Jeep May 7, 2014 in Toledo, Ohio.

General Motors, Chrysler and Nissan reported new highs in car sales that haven't been seen in upwards of seven years

General Motors, Chrysler Group and Nissan Motor Co surprised industry analysts with a spike in new car sales on Tuesday, signaling a surge in consumer confidence for big ticket purchases.

Fortune reports that GM sales climbed 12.6 percent in May to 284, 694, a seven-year high. Chrysler also posted a seven-year high in May, according to Reuters, led by a 58 percent jump in sales of its Jeep SUVs. Chrysler said its annual sales were tracking toward 16.9 million vehicles.

Nissan’s U.S. sales climbed 58 percent above May of last year to a record 135,934 vehicles.

[Fortune]

TIME Economy

Americans Splashing The Cash At 2008 Levels, Survey Finds

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Tom Hahn—Getty Images

Gallup survey says consumer spending hit a six-year high in May, a significant $10-a-day increase on the month before

American consumer spending hit a six-year high in May, according to survey results released by Gallup on Monday.

Americans reported spending $98 a day, spiking $10 above the April average and climbing higher than any other point since May of 2008.

Gallup noted that spending was buoyed, in part, by a surge of Memorial Day weekend shopping. Past surveys have typically registered $3 to $6 jumps, but this year, with spending jumping by $10, the results suggest something deeper is stirring in the economy, other than a sudden demand for hot dogs.

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