Three Questions About Consumer Spending and the Middle Class June 22, - - PowerPoint PPT Presentation

Three Questions

About Consumer Spending and the Middle Class

June 22, 2010

This information is for research purposes only and does not reflect the policy or views of the Obama administration

Jared Bernstein Office of the Vice President

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• This information is for research purposes only

This information is for research purposes only and does not reflect the policy or views of the Obama administration Obama administration.

Three Questions: Three Questions:

1. How do we define the middle class, and how do we measure their progress? This calls for differentiating their measure their progress? This calls for differentiating their actual consumption (and saving) against a more prescriptive assessment. 2. If we give up on prescription, we still should be interested 2. If we give up on prescription, we still should be interested in relative consumption differences across income

• classes. What is the trend in consumption inequality (and

how does it relate to income inequality)? q y) 3. Underlying both absolute and relative consumption challenges facing the middle class is the growing gap between productivity and compensation. A significant p y p g share of the growth in the gap (about a third) since 1979 is due to the difference in growth rates between product and consumer deflators. How can we better understand h l f h d ? the implications of this divergence?

Source: Department of Commerce, “Middle Class in America.” Underlying data from various sources.

Top Fifth 8.0%

Growth in Real Income and Consumption by Income Quintile, 2000‐2007

Top Fifth 7.0% 4 0% 6.0% 2.0% 4.0% 2000‐2007 Middle Fifth Middle Fifth 1.5% 0.0% ercent growth, 2 Middle Fifth ‐1.7% Top Fifth ‐1.9% ‐2.0% Pe Bottom Fifth ‐5.6% Bottom Fifth ‐5.2% ‐4.0% ‐6.0%

Income Growth Consumption Growth

Source: Current Expenditure Survey, CPS ASEC.

200%

Decomposition of Wage‐Productivity Disparity, 1979‐2009

180% Productivity

Change in Factor Shares

160% m 1979 Real Average Compensation, Implicit Price Deflator

CPI/IPD Difference

140% ent change from Real Average Compensation

Average/Non‐Manager Difference

Productivity 120% Perce Real Non‐Managerial Compensation

Wage/Compensation Difference

100% Real Non‐Managerial Wages Real Non‐Managerial Wages 80% 1979 1982 1985 1988 1991 1994 1997 2000 2003 2006 2009 Source: Bureau of Labor Statistics.

6%

Consumer Prices Outpace Product Deflators

4 5% 5.1% 5%

• d

3.6% 4.5% 4.1% 4% uring time perio 2.7% 2.7% 3% ate of growth du 2.0% 2.2% 2% Annualized r tor tor tor tor 1% plicit Price Defla ‐U‐RS plicit Price Defla ‐U‐RS plicit Price Defla ‐U‐RS plicit Price Defla ‐U‐RS 0%

1973‐2009 1979‐89 1989‐2000 2000‐07

Imp CPI‐ Imp CPI‐ Imp CPI‐ Imp CPI‐ Source: Bureau of Labor Statistics.