Last week, President Joe Biden told a rowd in Chicago that "Bidenomics is about building an economy from the middle out and the bottom up, not the top down," as he laid out his (aides') vision of an economic boom fueled by a surge in taxpayer-funded investments.
Except, as Bloomberg notes, Biden has a middle-class problem.
Among the 100 million Americans with annual incomes between $45,000 and $180,000 and wealth between $100,000 and $1 million, polling commissioned by Bloomberg News shows persistent angst about the future.
The post-pandemic surge in inflation and the Federal Reserve’s reaction — the fastest increase in interest rates since the 1980s — have combined to put the middle class in a financial vice grip. They pay more for everything — food, homes, cars, energy — while the end of the easy-money era means loans, too, are more costly.
And the bottom line: "More than $2 trillion in wealth held by the middle class has been eliminated since the Fed started hiking," according to data compiled by UC Berkeley.
Meanwhile, just 39% of the middle class say they expect their situation to improve over the next year, according to a Harris Poll commissioned by Bloomberg at the end of March and then again at the end of June.
An now, given that the moratorium on student loan repayments ending in October, coupled with the Supreme Court tossing the Biden administration's unconstitutional bid to relieve as much as $20,000 in student loans per borrower, many economists think we're in for a recession before the 2024 election.
Even the Biden administration acknowledges the anxiety among the American middle class.
"People are the best arbiters of their experience and their sentiment. And no one here is trying to tell them anything other than that," said Jared Bernstein, chair of Biden’s Council of Economic Advisers. "However, what this president has done objectively has turned this economy around, has created opportunities in the job market like we’ve never seen before, and has planted the seeds for a much more inclusive economic future for the middle class."
Sure Jared. Reversing the economy-killing government lockdowns had nothing to do with it.
Bloomberg conducted two dozen interviews with middle class voters, and found that the common theme was a feeling of vulnerability that's at complete odds with the historic lows in unemployment.
Meet Ron Davis, who enjoys a comfortable life in the suburbs of Minneapolis with his wife, Monica.
According to Bloomberg:
The business executive and his wife both drive a Mercedes and bought a Mini for their 21-year-old daughter last year. In 2021 they refinanced their mortgage and what little they owe on the four-bedroom home they bought almost two decades ago to take advantage of historically low interest rates. At age 56, Davis says some savvy investments mean he could afford to retire early if he needed to.
But he hasn’t escaped the anxiety. Davis was laid off by tech company GoDaddy Inc. in February, the second time he’d lost his job in the past 18 months. (The first came when hotel chain Radisson in 2021 laid him off from his job running its loyalty program in North and South America as its business collapsed because of the pandemic.)
Davis remains relentlessly upbeat about his own economic situation despite having watched his investments and retirement savings lose a third of their value since the onset of the pandemic.
And yet, all around him, Davis sees signs of his peers teetering.
“That middle class, it feels like that’s where it’s really hurting,” he says.
And while the long-predicted recession has yet to materialize, the wealth boom experienced from January 2020 until the Fed started raising interest rates in March of 2022, is over. Since then, the inflation-adjusted value of assets held by the middle class has fallen 6% or $2.4 trillion, per Berkeley. This translates to roughly $34,000 per middle-class adult.
This squeeze, between declining wealth and rising costs of living, has been showing up as apprehension in polls - as just 46% of middle-class Republicans responding that their personal financial situation is better than it was five years ago, vs. 64% of Democrats. Just 35% of Republicans say they expect things to improve over the next year vs. 43% of Democrats.
"I save every bit that I can," says 56-year-old retired police officer, Tammy Pearson of Granbury, Texas near Fort Worth. Pearson says she's watched her retirement savings lose 25% of its value in recent years.
"It was really scary retiring right after he became president," she said, referring to Biden. "I almost did not retire because I was afraid this was going to happen. My husband said we just need to have faith and hope for the best."
Most of the wealth destruction has been on paper, between declining home values or the daily market swings of retirement accounts which won't be touched for many years. But cashflow problems abound.
By the middle of 2022, middle-class households were spending $8,000 more each year than in 2019, before the pandemic — much of it on essentials, like housing, transportation and food, according to a Bloomberg analysis of Bureau of Labor Statistics consumer expenditure data.
For almost 27 million middle-class households in the US, those expenditures also outstripped their salaries, causing them to lean even more on debt and gig work to pay the bills. -Bloomberg
During the pandemic, all sorts of household costs skyrocketed. For example, the cost to own and operate a new vehicle breached $10,000 per year for the first time in 2022, per AAA, while household spending on transportation, which includes gas, is up 16.5% in just the past year. The monthly mortgage payment on a median-priced home with a 10% down payment is nearly double what it was in early 2021 at $2,342.
To cope with the rising costs of living, homeowners are now tapping into their housing wealth more often - as HELOC balances rose by $3 billion in Q1 2023, marking the fourth straight quarter of increases after nearly 13 years of declines.
To that end, the middle class has become increasingly leveraged - holding some $7.8 trillion of the $18.3 trillion of debt owed by US households at the end of last year. This is $1 trillion more than it was at the end of 2019.
So, while Biden continues to brag about the monumental jobs recovery since the pandemic, a recession would take whatever wind remains out of his 2024 sails - as even a relatively modest 1% rise in the unemployment rate would mean 1.6 million Americans losing their jobs. An the layoffs have already begun in finance, tech and most recently, manufacturing - with white-collar, middle-class workers feeling the pain.