Posted on 07/05/2003 11:36:42 AM PDT by sarcasm
WASHINGTON (Reuters) - When mutual fund powerhouse Fidelity Investments wants new ideas, one of the places it goes is Inferential Focus, a quirky New York prognosticating firm.
In their efforts to predict the future, the company's staff of seven, led by President Charlie Hess, read 350 publications on a regular basis. They ignore most of the noise -- surveys, prognostications, formal speeches and staged events -- and look for actual occurrences that can point to changes in American society, which can then be spun off into investable ideas.
What they are finding now is this: We're going down. Downwardly mobile, that is.
Even though the worst of the bear market might be behind us, the American middle class will continue to lose ground and the American consumer will continue to be squeezed for some time to come, said Hess and Gail Eisenkraft, one of his partners, in a recent interview.
They find that to be true at both middle and upper levels of the income spectrum. That has implications for the way we all spend and invest our money.
It's no secret that the U.S. has been on a rich-get-richer, poor-get-poorer track for several years. Most recently, the Labor Department said that the top 5 percent of America's wealthiest households earned 22.4 percent of national income in 2001, the most recent year for the compilation of these figures. That is its highest share since figures were first collected in 1967.
The lowest class, meanwhile, earned its smallest share, 3.5 percent. The middle section is slipping too.
Middle income households, which in 2001 earned between $33,315 and $53,000, earn 14.6 percent of American income every year. That's another 35-year low. Hess and Eisenkraft now say that this slump is spreading to the better-off, who are starting to act more like the less-well-off.
There are specific economic forces that will continue to hold the middle class down, says Hess.
Here are some of the events and trends that he sees working together to create a middle-class slide: the export of technical jobs and the continued unemployment of many American tech workers; the squeeze on state economies that will result in higher state taxes, fewer state services, and higher-priced state educations; the triple threat of high health-care costs, high debt burdens and continued weak stock prices and battered portfolios.
As a result, even the upper-middle class is starting to downscale spending habits and life style.
'We're seeing those pressures converge on the reasonably affluent household,'' says Hess.
More resourceful parents are sending their children to community colleges for the first year or two of higher education, just to save money. Everyone is shopping discount.
``The Dollar Store near Beverly Hills has shown more growth than any other Dollar Store in the country,'' Eisenkraft notes.
Maybe that's not all a bad thing. Perhaps if everyone is worrying about their money, they will spend less on empty status items, and nobody will have to be ashamed of being budget conscious. It might even be considered cool to shop the sales.
What, besides handwringing, can a squeezed middle-class person do?
Shop down and invest like everybody else is shopping down, suggests Hess. ``We are talking to our investor clients about the many plays that might result from the search for cheaper upscale and cheaper downscale.''
You can live well and spend less by nailing down a 15-year mortgage instead of a 30-year mortgage while rates are low; by buying used cars instead of new, and by looking for freshman-year college bargains, Hess suggests.
You can make money in the market on this trend by buying companies that sell used cars, good clothes at a discount, product manufactured homes or quality items at commodity prices, like the big warehouse stores.
Look, too, at for-profit trade schools that could benefit once middle-class students realize they are graduating college with tens of thousands of dollars in debts and no solid job prospects to speak of, suggests Eisenkraft. That's just one more way of investing in the downscaling of America, so that even if you're down, you can be up, at least a little.
You're missing a couple of points:
1. That's income. What about expenses like taxes? These have increases substantially, leaving less disposable income.
2. What about the cost of getting that job? If you need to go into debt to the tune of tens of thousands of dollars befor taking your first job, then what is the net result on total income? What if you could take $100K and invest it in a mutual fund when you were 18 and then add that on to your salary because you didn't waste it buying a certificate of work eligibility from our educational institutions? That would be the equivalent of the situation in 1965.
3. This is the average, not the median. Because we have already noted that the rich got a lot richer, that means that if the average stayed the same, then the median person went backwards. Also we know that disproportionate income was dedicated to women and minorities. That means that the average white guy supporting his family is much much worse off than he was in 1965.
4. Why brag about being stagnant? A growth rate of 0.2% during a time of tremendous economic productivity means that the average worker has not been able to benefit from the computer revolution, as well as all the other benefits of an entire generation of economic growth. This is in stark contrast to prior generations when the average American's standard of living rose enormously.
He has no clue.
All women's liberation into the job market has done is to make everyone earn less.
The same is true as to unlimited immigration. More people, fewer jobs; fewer job applicants, more and higher-paying jobs.
Supply and Demand. Supply and Demand.
No, it doesn't mean that at all, and you haven't even phrased it correctly (the average went up .2% per year in even the very worst selected period in our data - that's NOT staying at the same wage).
2 million rich people can get richer at 4% each year, while 280 million people get richer at .1% each year, but that doesn't mean that the median income went backwards.
What it means is that the median income went up at least .1% each year while the average income went up .2%.
My figures are for inflation-adjusted REAL millionaires. Had you pointed such a thing out, you would have been mocked for not realizing that the data was already adjusted.
Sigh, just what I need to see...
Good article. Thanks.
How many times do I have to place the word **REAL** in front of my dollar amount posts?
Should they commit mass suicide?
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