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As Stock Market Surges, Middle Class Has Been Shredded to Pieces

The sequester reminds us of the baby fights going on in Washington, but this hasn't gotten to the heads of investors: the Dow Jones Industrial Average has soared to record heights while the S&P 500 looks primed to follow suit. Adding to the optimism, February's jobs report saw unemployment fall to 7.7% as 236,000 jobs were added. This is good news for everybody. Economic strength is foundational to America's global status. Unfortunately this positive economic data has been undermined by evidence that the American middle class (so beloved by politicians during election season!) is dissolving before our eyes.

Take for instance big firms like P&G, Heinz, and Citibank. These firms have shifted their market strategy to fit the "consumer hourglass theory," which outlines we're better off aiming marketing strategies at the bulging top and bottom markets of society given the middle is being squeezed out.  

Wealth and power are centralizing in the hands of few under the crude guise of economic prosperity. Despite the general optimism steaming from the markets and unemployment new, the fact remains it is the wealthiest Americans, not the common American person, who are most benefiting from the economic recovery. 

1. The Employment-Population Ratio

In a sense the unemployment rate is misleading in that it does not necessarily mean more Americans are waking up to go to work everyday. While fall in unemployment generally strikes us as a good thing, this is not always the case. Unfortunately, falling unemployment seen in February's jobs report is in fact artificially low — it is not a true representation of joblessness in America. The E/P ratio, as seen below, has fallen roughly 5% since the onset of the recession. Although the number of people counted as "unemployed" fell, this has not translated to a greater percentage of people having jobs. Its staggering that although the stock market is doing the best in its history, it has not relied on more Americans working to achieve this result (thanks, globalization). It must be noted the decline in the E/P ration can be partially attribute to baby boomers leaving for retirement. Nonetheless, this figure paints a truer picture of the middle class' dissolution into history books.

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2. Increased Worker Productivity meshed with Stagnant Wages

One of the leading reasons for corporate gains — and subsequent peaks in the stock market — has been worker productivity. Since the hailed era of Reagonomics, corporations and stockholders have benefited greatly from and increase in worker productivity. Workers, however, have not seen their wages go up correspondingly. Flat-lining wages coupled with record high corporate profits translates to a flat-lining heartbeat of the middle class.

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(credit to Robert Wolff for chart)

3. A Changing (and Less Flattering) Make-up Of the "Unemployed" Population

The changing make-up of jobless America lends further evidence that the middle class is being incinerated. The latest recession has uniquely harmed Americans in a few respects. First, the amount of people who constitute the "workforce" that is used to calculate unemployment is at its lowest percentage since the late 1970s. Less labor force participation means less people are counted as "unemployed." Again, this makes the fall in unemployment a bit misleading.

The latest recession has some economists thinking that the current unemployment problem is actually a long-term unemployment problem. The make-up of people who are technically counted as unemployed face historically unique circumstances. People that lost their jobs in the most recent recession have remained unemployed for record long periods. Throw in cheaper costs of doing business with India and China and enhanced efficiency; the demand for U.S. labor is not what it used to be.

4. Stock Market Surpluses Streamline to those Who are Already Wealthy

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The reality of the situation is that the middle class is being increasingly shredded to pieces. Once the real unemployment picture and corporate success are fleshed out this becomes clearer. For instance, if the U.S. was condensed into 100 people, 1 person would own about 50% of all stocks, bonds, mutual funds and ETFs. It follows then that the wonderful gains in the stock market by no means translate to a brighter economic reality for middle class America. 

Ethan Harrisa, a top economic executive at Bank of America re-affirms the reality that has taken the country by hold without so much as our knowing about it. She told the New York Times, “so far in this recovery, corporations have captured an unusually high share of the income gains.The U.S. corporate sector is in a lot better health than the overall economy. And until we get a full recovery in the labor market, this will persist.”

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