clipped from: www.cbpp.org   

A TOUGH RECOVERY BY ANY MEASURE:
New Data Show Consumer Expenditures Lag for Low- and Middle-Income Families
By Jared Bernstein and Jason Furman

Overview

Data on wages, compensation and income paint a disappointing picture of the current economic expansion, especially from the perspective of low- and middle income families.  By most measures, real incomes were lower in 2005 than in the recession year of 2001, and real wages, after rising through mid-2003, fell consistently until very recently.

These unfortunate trends have occurred amid strong productivity growth, which implies that wage and income inequality — and in particular, the gaps between what high-income Americans are receiving and what other Americans are getting — has grown.  Recently released Census data show that the top fifth of households received 50.4 percent of the nation’s income in 2005, equal to the highest share on record.[1]

Indeed, the data on consumer spending — including newly released data for 2005 — add an important element to the story.  They show that while households in all income categories saw their average before-tax incomes decline between 2000 and 2005 in inflation-adjusted terms, high-income families were able to increase their consumption levels through a combination of generous tax cuts, borrowing, and drawing down (or reducing) saving.  In contrast, low-income families have not been able to weather the storm and have had to cut back on their expenditures, with little help from their modest tax cuts and with little recourse to borrowing.  The evidence indicates that for middle-class families, consumer spending is roughly unchanged from its level in 2000 (or 2001).