Economy

Middle Class No Longer Majority, May Hurt GDP

Douglas A. McIntyre

Published: December 12, 2015 9:05 am

Last Updated: January 13, 2020 4:10 pm

The American middle class has lost its position as the financial majority, and its prospects are dropping quickly. The news cannot be good for the U.S. economy, which counts on consumer spending for over two-thirds of gross domestic product (GDP). The data also support the belief that the rich are getting richer while the poor get poorer.

New research from Pew says of the declining middle class:

After more than four decades of serving as the nation’s economic majority, the American middle class is now matched in number by those in the economic tiers above and below it. In early 2015, 120.8 million adults were in middle-income households, compared with 121.3 million in lower- and upper-income households combined, a demographic shift that could signal a tipping point, according to a new Pew Research Center analysis of government data.

In at least one sense, the shift represents economic progress: While the share of U.S. adults living in both upper- and lower-income households rose alongside the declining share in the middle from 1971 to 2015, the share in the upper-income tier grew more.

A large body of data shows that the concentration of income and assets among the rich dwarf that of the balance of the population.

As for a definition of the segment:

The income it takes to be middle income varies by household size, with smaller households requiring less to support the same lifestyle as larger households. For a three-person household, the middle-income range was about $42,000 to $126,000 annually in 2014. However, a one-person household needed only about $24,000 to $73,000 to be middle income. For a five-person household to be considered middle income, its 2014 income had to range from $54,000 to $162,000.

The median household income among Americans is just over $51,000 a year. When inflation is taken into account, over the past decade, this number has fallen slightly.

As the trend of flat real income continues and the assets of the rich grow rapidly, the middle class rate of attrition will continue, if it does not get worse. By extension, the decline threatens GDP growth.