The Middle Class Spending Crash Explained

Tyler Durden's picture

With Black Friday sales plunging and Cyber Monday growth slowing, it appears the chicken of stagnant wages and debt-saturation are coming home to roost for a massacred middle-class America. However, as WSJ reports "we are buying less stuff," because the basic costs of necessities such as healthcare, food eaten at home, rent, education, and cellphones have surged.



As The Wall Street Journal reports,

Consumer spending continues to make up just over two-thirds of the U.S. economy. But where households spend that money has shifted significantly.


To see how it has moved, the Journal analyzed Labor Department data on 2013 out-of-pocket spending for the middle 60% of the population by income—households earning between about $18,000 and $95,000 a year, before taxes.


The data show they are losing ground. Overall spending for the group rose by about 2.3% over the six-year period from 2007, even as inflation totaled about 12%. At the same time, income for the group stagnated, rising less than half a percent.


With health care and other costs rising, these consumers spent less on furniture, entertainment, clothing and even child care, the Journal analysis found.

“Part of the story is that your income growth is slowing,” said Steven Fazzari, an economist and chairman of the sociology department at Washington University in St. Louis. “They’re spending more on necessities, cutting back on other types.”



Inflation much...

The overall cost of health care rose by 21% between 2007 and 2013, according to separate data from the federal Centers for Medicare and Medicaid Services. And employees paid more for workplace insurance, averaging $380 a month for family coverage in 2013, up 39% from 2007, data from the Kaiser Family Foundation shows.


This year, overall health-care spending is expected to continue growing at a modest pace, but government projections suggest U.S. households may spend slightly less, as more people obtain insurance, premium subsidies or Medicaid coverage.


Spending on mobile-phone service, meanwhile, has soared, rising nearly 50% since 2007, the year the iPhone came out and data plans became more commonplace.


Similarly, spending on home Internet service has soared by more than 80%. Last year, it made up about 0.8% of spending for middle income households, up from 0.4% six years earlier.

And this means discretionary spending has collapsed...

To make up the difference, middle income Americans have cut costs where they can. Spending on event admission and fees has fallen 16.5%, while spending for a broad category that includes boats, motor-homes, cameras and party rentals has fallen 31%.


Spending on household textiles, including bath and bed linens, has fallen 26.5%. Spending on care for children and the elderly has fallen 25%.

Simply put, the American Middle-class...

“I buy less stuff for myself,” she said. “We’ve cut a lot out—a lot of extras you used to get, so you can afford food and the electric. And you’re trying to save for retirement.”

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Shizzmoney's picture

America: where luxuries are cheap and necessities are expensive

I look forward to getting a cancerous bump on my back that won't be treated because I can't afford health insurance or hospital care but I'll at least be able to tweet it via my sweet iPhone 11!

Richard Chesler's picture

We impoverished some folks...


kaiserhoff's picture

Food, fuel, and transportation should all be lower next year due to the grain harvest and oil.

Health care will be a disaster for some, but many are either set with good plans or saying fuck it.

The real problem is jobs, one place where the city and rural areas are much the same.  It's easy to get a job now, but almost impossible to earn a living wage.  WTF?

angel_of_joy's picture

The bad news is that pets are becoming a luxury. The good news though: that's still a much more affordable one than kids...

zuuma's picture

But..But.. But... the Affordable health care act was going to lower our premiums & create jobs?

They said so!

What happened???




Headbanger's picture

Spending on alcohol dropped !!?


Dre4dwolf's picture

Probably people concerend with sky rocketing health care and insurance costs trying to be more health concious . . .  go figure, get healthier and pay more for insurance. . .  what a scam Obama care is.



daveO's picture

Nah, just buying bottom shelf hooch, or making it at home. I just saw, in a big retail circular, a home brew kit for $40.

847328_3527's picture

Obamacare forced me off my self-pay BCBS insurance when I stayed healthy 'cause I paid for it out of my own pocket but I culd afford the higher premiums and lower deductibles but I worked hard to stay healthy and avoid both doctors and costs.


NOW, the shit heads forced me into a plan with higher premiums and much higher deductible. I have to say I vow NOT to vote Dem again in my lifetime, even though I'm not a big fan of Repugnicans, they never trashed me the way Barry and his Buds Piglosi and reed have.

J Pancreas's picture

Lulz! -1 for ever voting Dem. Serves you right, suckuh!! Not that voting matters anyway...

Ying-Yang's picture

Being 63... born in early 50's

I have seen about 6 decades of economic swings. In short, The fifties were some of the best times. Men returning from war and wanting to work. Wives quit work to raise a family. Grand parents doing well, helping family and helping with the kids. Good times.

Easy to find work, good pay, profit sharing plans, great retirement benefits. The fifties were an innocent time with an outlook of really living the American Dream.

What Happened Next...

Flash forward sixty years, "really, this is an advanced culture from 6 decades ago"?

No sense mentioning the here and now. We are living it.

The damn thing is I watched it all go by. Fucking amazing.

Few short recalls:

US and Russia came very close to popping nukes at each other.

When you had only one day a week to buy gas. Long lines to get gas.

Had some shorty CD's paying 15%+, car loans at 10%, passbook savings earning 5 1/2%.

Not much foreign stuff to buy, made in USA meant built well and last a long time.

The reason for the change is greed. Good times turned down as some folks wanted more and more. Pretty soon became the norm.

American companies made a MORAL choice to earn more profit by going global. "Yes American boy, work for me today, work hard and live the American Dream.

Then we change the rules. Women should work too. Gotta love it.

No sir you placed in the top 97% but since you are not a minority or female you did not earn an equal opportunity credit of 30%, so you now are number 16 inline for the job.

Still, pretty good times. Lot's of sex, drugs and Vietnam... Tricky Dick. The military draft and lotto numbers to go fight.

Gizmo births. All kinds of new shit to buy. Really cool stuff, fax machines, jet airplanes, Atari PONG, Shelby Cobra Super Snake, Picante sauce, 8 track tapes. Top of the line Baby. Sony the One and Only and so on!

Oh by the way, all of you just joining the labor force, we have the deal for you. It is called the credit card, tastes like MONEY.

Ah sorry employees, management has made the decision to offshore our manufacturing, bye bye. Good news is corporate heads stay flush+. Just think of all the poor people around the world that some day will buy our products and raise their own standard of living.

Hmmm, is this progress? It was and still is, a MORAL choice! For better or worse a choice.

If you and me have a successful growing business, making the bucks big time. Each year we make a choice to distribute excess profits spread over stockholders, management, consumers and employees, or not. Place your bets please.

Greed must be a powerful stimulant, gotta get me some of that, or not.

That's what happened, and also there was Weed. Just Saying.



MOB666's picture

So the weed killed your taste for greed?

Ying-Yang's picture

Not so much. I don't like to screw other people just for my own gain.

tonyw's picture

post WWII was good for US since most other industrialised nations were more or less bankrupt with much war damage.

With no attacks on the mainland US was able to continue manufacturing during the war and then afterwards.


FWIW, I buy less stuff for myself because i don't need or want anything more.

lim's picture

Maybe after world war iii we can go back to the fifties again?

Doubtful, with all the advanced missles and kill efficiency ratings and such

luckylongshot's picture

QE does not seem to be helping

Ward no. 6's picture

going vegetarian is a good thing

the lentil mushroom taco thing is something i would like to try

AGuy's picture

"Spending on alcohol dropped !!?"

Around these parts: Yes. The Local Bars have about half of the customers they did pre 2008. A few bars have gone out of business. Perhaps people are drinking more at home=, but not at the bars.

cynicalskeptic's picture

People are drinking more at home and drinking cheaper stuff..... 

'Aspirational' brands are seeing drop offs as people realize the extra cost cuts down on the amount they can drink - doesn't matter if you're drinking at home if it's Grey Goose or grain.

BandGap's picture

Just my opinion but I have never seen mid to top shelf liquor cheaper than it is right now.

Serious competition going on right now for your dollars.

Overfed's picture

The indooor smoking ban im my neck of FEMA region X put nearly all of the remaining taverns out of business. The rest had to get liquor licenses and covered outdoor smoking docks to survive. I personally hate going to a bar full of whiskey-drunk 20-something idiots. These days, I do about 95% of my drinking at home, and most of it is beer/wine that I made.

kchrisc's picture

Some clients and friends that I have have told me that people just don't want to drink out anymore, as the risk of being robbed and jailed by the gun and badge thugs is too high. They are even caging and robbing people with a BAC of 0.0.

The smoking bans are also hurting business, and the related loss of tobacco sales.

Of course the irony is that the thugs have to become more brutal to extract the equivalent in revenue as in the past. That is one reason the thugs have become exponentially more brutal the last few years.

An American, not US subject.


One restaurant/bar owner I know says that a client of his has taken to calling the thugs, via the non-emergency line, before leaving for home. He then asks them to evaluate if he can "legally" drive home. The thugs don't respond anymore, but my client says that it sure was funny to see the thugs put on the spot.

He also says that he has a family friend that owns a bar in another state. This other bar owner is absolutely sure that one of her clients is using a throw away phone to call in emergency calls on the other side of town to make it safer for him to get home. The client pulls out the phone, then a SIM card from his wallet, puts them together, and then disappears into the bathroom and then he leaves. The bar owner eventually put two and two together.

s2man's picture

My fault.  My liver has been bitchin' and I had to cut back about 95% on the alcohol. Sigh.

Next spending cut is tobacco...

centerline's picture

Downgraded to the cheap stuff.

RaceToTheBottom's picture

I expect homebrews are increasing....

spiral galaxy's picture

Possible!  I traded in my wine bottle for craft beers.  So basically my $50 750ml bottle of Napa morphed into a 48oz 4-pack of fine craft at some ~$12 per.  ......and the alcohol content is in the 7.5 to 11 abv level.  And the bonus for this switch is that less taxes now go to the state/feds!!!  So drink up! :-)

Dre4dwolf's picture

Government happened.


A Nanny Moose's picture

"If you like your current can keep it." - The 0'Bamabot.

Jumbotron's picture

"But..But.. But... the Affordable health care act was going to lower our premiums & create jobs?

They said so!

What happened???"


Obama lied.....the economy died !

Richardk888's picture

I willl be paying an additional 147 dollars a month for my health insurance starting Dec. 15th.  No more value for a nearly 50% cost to me increase!

The insurance company said my company was lucky because we fall into one of the categories which reduced our increases.  Next year we are fucked though!

I am about sick of these Republican and Democrat ass clowns in DC taking my fucking money!

lucyvp's picture

Same here my friend, 30% increase for 2014, 40% increase for 2015, deductibles and max out of pocket way up.  They are out to destroy us.

tonyw's picture

Glad to see you understand it is both "Republican and Democrat" that are in sway to their contributors from the medical industry.

The US pays more and gets a worse service than almost all other developed countries, basically because of laws that keep costs high, e.g. no drug imports.

Most other developed countries pay about half and have better run services.


ZerOhead's picture

Even the Chinese are complaining about the high cost of dog.

Don't think it's legal to eat the kids yet except perhaps in Africa...

Gman1979's picture

The bad news is socialism and central planning don't work and that is what we are trying.

I am buying more gold, guns and food.

sharonsj's picture

Gman, Obamacare isn't socialism (no matter what Fox News tells you).  It is old-fashioned capitalism where the health insurance companies and big pharma still control everything.  Nothing will change unless we throw out 99% of Congress and get rid of campaign money.  And since that won't happen because the politicians are getting rich that way, revolution is starting to look real good to me.

Boondocker's picture

I hope that is true but doubt that anything will be cheaper but gas

TruthInSunshine's picture

Many sellers/distributors/manufacturers of discretionary goods are about to be massacred, and even sellers/distributors/manufacturers of essentials (energy, food, medical, etc.) will see decreasing net margins as the current trend continues.

Big Box Brick & Mortar is TOAST.

Wait until the 10% holding up what's left of the discretionary spending turns into the 5%, which is closer at hand than many believe.

THIS IS WHY FED MUST SUPPORT STAWKS AT ALL COSTS (whether they can do this successfully for much longer for the 1st time in history as this very effort decimates the rest of the economy is up to "efficient investors" to decide upon).

Make_Mine_A_Double's picture

I beleive this is the year you will actually see it bite. I am in global logistics and some of the boxers are our clients. Smart guys moved their inventory earlier, but they have had to compress their merchandise so much to compete with the point and click guys that there is not much to get folks into the stores.

So to keep costs down they are homoginizing their inventories. Which is one more reason for people to say 'screw it'. Why go to the X Mall when the selection is better on the internet. I chat up the young ladies in the office about their shopping habits as most of the youngsters are techies. Several have AMZ prime so they 3P to 3P their gifts to relatives all over the country and never touch it - when you think how expensive the Posties and FedEx is these days that is no small savings - and also means they don't go to the mall either.

The young ladies (who I would guess make up 70% of mall shopping) only go to the mall now for H&M and the other fast fashion deals (they are blissfully unaware of how many Bengalis get fried for those garments...).

In short the top tier malls will be okay for awhile longer, but 2nd and 3rd tier malls will burned at the stake. They can spin it, but they can't hide any longer.  


motorollin's picture

The mall near my old place (Central Valley in California) underwent a big ass upgrade during the recession. It was previously a shit-tier mall, held up by JCP and Sears. I laughed at the fact that they put in an Apple store, Burberry, etc. when everyone was out of work. I guess it's the only way to survive. 

TruthInSunshine's picture

If I WERE retail (I'd never be, though), at this juncture I'd want to be in a 5% area serving/selling to the 5% (I would have said 10% just two years ago; look at how quickly it's falling apart).

This would net a better statistical chance at doing relatively better and for a while longer than serving/selling to the 95% at a time when the formerly substantial middle class and even upper-middle class is getting its head handed to it.

Again, this is only if WERE retail (or even manufacturer). I'd never be. Not in a million years. Not in USSA which is rapidly going the way of Banana Republic.

No nation can avoid terminal decline with 5% (or even 10%) of the citizens propping up discretionary spending. In the 1960s, a solid 40% of Americans practiced regular and relatively easy discretionary spending of the casual & wanton sort without self-destruction through debt implosion.

rbg81's picture

In the late 60s and 70s, the mall was THE  place to hang out.  No longer.  My local mall has become an incredibly dingy and dark place, like a temple of doom.  The larger indoor malls will back the trend for a while, but they are going downhill too.  Paradoxically, outdoor malls seem to be doing better than ever.   And don't even talk to me about Walmart, home of the welfare animals.  Amazon will soon be the primary retailer if its not already, with most good distributed directly from automated warehouses. 

Jumbotron's picture

83% MOAR for internet.

This shows just how badly we are getting RAPED by the phone and cable companies.  You would think that with more people than EVER on the net paying subscriptions that the cost would go DOWN.

BUT NOOOOooooooo......fucking bastards want more for less and on top of that.....a lot of that 83% increase comes from BUNDLING your internet with TV and Phone. can't get the internet by itself.  You've got to get a bundle.

And all the while they enjoy 50-100 mbps over wireless in Scandanavia.  Fuck our communication companies in America.

Trogdor's picture

Couldn't agree more.  Fuck Comcrap and the other telecom gouging parasites - and the government butthole-cleaners who take money from them and suffocate competition.  May they all watch their loved ones die horrible, drawn-out deaths ...... before their own, of course.  I live in an area where Comcrap basically has a monopoly - they're expensive, service sucks, and they have a super-shitastic attitude - like they're doing YOU a favor for keeping your internet going....

Midas's picture

I just got a friendly note from my friends at charter communications saying my internet bill will be going from $55 to $60 next month.  This is after the $5 increase last year.  And after my $45 promo ended the year before.  Since it is pretty obvious they  were making money at $45, I am happy for them and their successful business model.  I am looking for options, but not finding any great ones.  Maybe I just buy stock in the bastards...

lucyvp's picture

Even though internet/e fees are up big it does not matter that much.  I pay .4% of my income for DSL.  Housing on the other hand ... it is up 26% but since it 30% of my income that really hurts.

I pay roughly $25 a month for DSL,  $7 for a prepaid wireless plan, and dont have cable, $20 for a wired phone.  Sometimes less is more.  Less confusion, less stress.  If I want to see an espn game, my local bar has it on, and it costs me $20 in beer/soda/fries to watch it.  But this only occurs about once a month, where there is a must see game on ESPN.  I do miss the discovery channel.  But not $700 dollars a year worth.