Maybe the middle class isn’t quite so stressed any more.
We in the media are rightly criticized for a pessimistic bias. We cover the unfortunate, the grim and the tragic. News is what people don’t know and, as often as not, is sad or shocking. Our prism on the world distorts reality, because reality is often predictable and reassuring while we aim to be surprising and upsetting.
A case in point: the Federal Reserve’s recently released “Report on the Economic Well-Being of U.S. Households in 2015.” Although full of upbeat news, it received scant media attention. Perhaps it seemed too dull.
The headline message is that 69 percent of households said they were “living comfortably” or “doing okay,” up from 62 percent in 2013. Improvements were across the board. For households headed by someone with a high school diploma or less, 61 percent felt this way, up from 53 percent in 2013. For college graduates, the gain was to 80 percent from 77 percent.
Respondents were asked whether they are financially “better off, “worse off” or “about the same” than a year ago. Twenty-seven percent said their prospects had improved, while 19 percent thought the opposite. (The rest were “about the same.”) Saving also has increased. The number of households saving was up 9 percentage points over 2013. Only 15 percent of households reported spending more than their income.
None of this is barn-burning news. But it reflects a gradual and widespread shift in psychology, behavior and well-being. It further buttresses the economy’s expansion by strengthening consumer confidence. The recovery could last longer; the next (inevitable) recession could occur later. The evidence is not conclusive; but it is suggestive.
Of course, qualifications need to be made.
The first is obvious. Despite the improvement in families’ finances, economic hardship has hardly disappeared, especially among poorer families. The Fed defines these as having $40,000 of income or less, which is about two-fifths of the population.
Among this group, 18 percent say they’re “finding it difficult to get by,” while 32 percent say they’re “just getting by.”
For many, the stresses are acute. Although many consumer loans and mortgages have been paid down, almost 30 percent of respondents said they’d have trouble covering an unanticipated expense of $400. (That’s the headline you might have seen from this report.) Writing recently in The Atlantic, author Neal Gabler confessed that he belonged to this group. Weighed down by debt, he blames over-optimism as the ultimate culprit.
“I never figured that I wouldn’t earn enough,” he writes. “Few of us do.” Inflation-adjusted incomes have slowed to a crawl. “The only thing one can do is work more hours to try to compensate.… I work seven days a week, from morning to night.”
A second qualification is subjective: The economic mindset has shifted dramatically since the Great Recession and the 2008-09 financial crisis — and this has huge practical repercussions.
People are more wary, because these crises were not only the worst economic setbacks since World War II but also because they were almost completely unpredicted. If the unexpected happened once, it could happen again. Consumers are more protective. They want to be ready for another crisis even though they can’t predict whether or when it will occur.
The upshot is that the same levels of income and assets (homes, stocks, bonds) inspire less confidence than before.
This is the real-world fallout. Consumer spending is restrained. So is household borrowing. Facing weak sales and ferocious competition from online companies, traditional retailers are consolidating. Sports Authority has gone bankrupt and is closing all its stores; other chains are cutting back.
Still, the task of journalism is not just to scare, delight, surprise or crusade. It is also to present an accurate picture of the world. Our penchant for pessimism shouldn’t prevent us from publishing a story with the headline, “Good news for the middle class!”
Mr. Samuelson has written about business and economic issues since 1977.