Policy: Labor

The week ahead in economics: Middle class spending, Janet Yellen testifies and job openings

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The economy's recovery has been unequal, with the top 1 percent of income earners capturing 95 percent of the income gains between 2009 and 2012, according to the most recent Internal Revenue Service data collected by Berkeley economist Emmanuel Saez.

That in turn has led to a conspicuous rise in high-end consumption in recent years, from booming business at luxury retailers to low vacancies at pricey hotels.

But that doesn’t mean that middle-class and lower-class consumers are not feeling the recovery; they are.

In survey data provided by the Conference Board, a business research organization, consumer confidence is rising at every income level, not just at the very top or higher income brackets.

Although consumer confidence generally rises with earnings, the brackets move together. The declines through the latter part of the recovery years likely reflect the political showdowns over funding the government and raising the debt ceiling.

Broadly rising consumer sentiment should not come as a surprise. Consumption has also been up through the years of the recovery. Although all groups of Americans felt the pinch as the financial system collapsed and the job market hemorrhaged for several years, the recovery in consumer spending has been equal.

the economists Bruce Meyer of the University of Chicago and James X. Sullivan of the University of Notre Dame dug into data on spending in the Consumer Expenditures Survey published by the Bureau of labor Statistics. They found that inequality between the 90th percentile and the 10th percentile, in terms of consumption, fell after 2005, and remained at a lower level through 2012, the most recent year for which data is available.

That doesn’t mean that the very rich haven’t been pulling away from the rest of the distribution. In a new study published by the Institute for New Economic Thinking based on a different data set, researchers found that the top 5 percent of income earners’ share of consumption spending rose from 26 percent in 1989 to 38 percent in 2012.

Sullivan thinks those findings accord with his own regarding the increasing consumption of the middle class. “They’re not falling behind people at the 90th percentile,” he told the Washington Examiner. “They might be falling behind the super rich but that’s a different story.”

Rising middle-class and lower-class consumption comes alongside rising incomes in those groups. The Manhattan Institute scholar Scott Winship recently looked into Current Population Survey microdata to examine income trends. Taking into account the effects of federal antipoverty measures, including non-cash benefits such as food stamps, Winship found that “[b]y 2011, the safety net had returned middle-class and poor households' incomes to the highest levels ever seen. Since then, the situation has likely improved. Disposable income among the poor and middle class is probably at an all-time high.”

One development clouding the picture for lower-income consumer spending in the near future is the recent cuts to a few key safety-net programs, including food stamps, and extended unemployment benefits, which expired in December and have not been renewed. Extending the unemployment program for one more year alone would have increased spending by about $27 billion over the next two years, according to the Congressional Budget Office.

That decrease in federal aid to lower-income and struggling people will affect retailers, analysts predict. National Retail Federation economist Jack Kleinhenz said in a press call regarding the sales outlook for the next year that the reduction in food stamp spending “certainly is part of the landscape for 2014.” That hit to poor families, though, will be “offset” by some added capabilities on the parts of middle income earners, he added.

For the week ahead:

Janet Yellen will make her first appearances as the chairwoman of the Federal Reserve this week, testifying in the House of Representatives Tuesday morning and the Senate on Thursday morning. She is sure to face tough questions about how her plans for the Fed differ from those of her predecessor, Ben Bernanke.

On Tuesday, the Bureau of Labor Statistics will release the Job Openings and Labor Turnover Survey for December. JOLTs, as its known, provides information about the pace of labor market churn, and this month's edition follows a lackluster jobs report for January.

The Department of Commerce will release its report on retail sales for January on Thursday, and the Fed will report on industrial production on Friday.

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