The Widdershins

Posts Tagged ‘working class

Victorian poor in Braxton London

Victorian poor in East End London

All I can say is that I was almost floored when I read the headline on this Yahoo Finance article which was titled “Why Walmart is getting too expensive for the middle class”.   I thought “Wait a minute.  Walmart is maybe for the ‘lower’ middle class and the poorer folks, not for the ‘regular’ middle class”.  Now I do admit I shop there myself for certain things and on certain occasions.  But I just kind of thought the regular middle class folk go to Target or some place like that.  But apparently in our recovering economy (?) Walmart’s fortunes are not doing that well.

The sliding fortunes of Walmart (WMT) may best represent this recovery gap. Overall, retail sales rose 4.2% in 2013, or about 2.7% after accounting for inflation. And consumer confidence surveys show Americans on the whole feel considerably better now than they did a year ago. That ought to indicate good times for the nation’s biggest retailer.

The article says that Walmart’s stock is underperforming and sales are off:

The company recently cut its profit outlook, with analysts polled by S&P Capital IQ expecting just a 2.1% gain in sales when Walmart reports its quarterly earnings on February 20. That’s for a company that has consistently outcompeted nearly every other retailer except, perhaps, Amazon. Walmart’s stock has suffered, rising just 4% during the past year, while the S&P 500 index rose 17% during the same timeframe.

Joe Brusuelas, chief economist for financial-data firm Bloomberg LP says that “Their consumer is shifting downward,”.  “The competition for Walmart is changing. It’s now dollar stores.”

The article points out three things that happened during 2013-Jan. 2014:

  • Congress repealed a payroll tax cut that had been in effect for two years.  When the full withholding amount was restored, people saw it as some type of “new” or extra tax.  For the record, I was against this because I knew folks would get used to the lower amount and then gripe when the full withholding was put back in place.  Of course what do I know.
  • In November, the “extra” amount in SNAP benefits was eliminated causing a reduction in those benefits.
  • On January 1st Congress did not restore or extend the “enhanced” jobless benefits which had been available since 2008.

The end result of these events was that for many folks,disposable income (what we spend in those stores) took a hellacious plunge or flattened as shown here:

The article goes on to state that it’s not only Walmart, but merchants like J.C.Penneys, Target and yep, even Amazon had disappointing sales numbers.  So, if that’s the case and retail sales have been rising, who is doing the buying and who are they buying from?

Mostly high-end merchants such as Nordstrom (JWN) and Michael Kors (KORS), luxury automakers such as BMW and Mercedes, upscale appliance manufacturers including General Electric (GE) and even yacht manufacturers. As the New York Times noted in a recent article, demand is much stronger for GE’s top-of-the-line dishwashers and refrigerators than for cheaper, mass-market models. And a modest boom in home remodeling is being driven by a small portion of homeowners who have both cash and home equity, a combo many mortgage holders can only envy.

In this article for Yahoo Finance, two economists, Steven Fazzari, of Washington University in St. Louis, and Barry Cynamon, of the Federal Reserve Bank of St. Louis have some interesting statistics to look at:

In 2012, the top 5 percent of earners were responsible for 38 percent of domestic consumption, up from 28 percent in 1995, the researchers found.

Even more striking, the current recovery has been driven almost entirely by the upper crust, according to Mr. Fazzari and Mr. Cynamon. Since 2009, the year the recession ended, inflation-adjusted spending by this top echelon has risen 17 percent, compared with just 1 percent among the bottom 95 percent.  [Bold and italics mine]

As Fazzari says in the second article:  “It’s going to be hard to maintain strong economic growth with such a large proportion of the population falling behind,” he said. “We might be able to muddle along — but can we really recover?”

Now another area that is mentioned in the article concerns appliances.  Quoting from the 2nd article:

At G.E. Appliances, for example, the fastest-growing brand is the Café line, which is aimed at the top quarter of the market, with refrigerators typically retailing for $1,700 to $3,000.

“This is a person who is willing to pay for features, like a double-oven range or a refrigerator with hot water,” said Brian McWaters, a general manager in G.E.’s Appliance division.

Well I have news for Mr. McWaters:  I’ve been doing some “window shopping” on refrigerators (although not his brand) just a decently sized refrigerator  is going to set you back starting at the $1,000 price level.  I’ve been checking them out online at Home Depot and Lowes.  I’ve read that side-by-side fridges tend to break down more often and I don’t care for them as to me they have too little room on either side.  Top freezer fridges don’t have enough room in that top freezer.  So that kind of left me looking at the French Door models.  I don’t have to have the biggest of them but I do want things such as water and ice through the door if possible.  The cheapest I could find in stainless with ice/water through the door was a Whirlpool model for$1700.

Oh well, that was just a little personal aside there.  Still, the thrust of these two articles is that the American Dream for most Americans is not so dreamlike anymore but rather like a nightmare folks can’t wake up from.  Incomes are not rising for the majority of folks, they’re stagnant if not going down.

I’ll repeat here what Mr. Fazzari said:

“It’s going to be hard to maintain strong economic growth with such a large proportion of the population falling behind,” he said. “We might be able to muddle along — but can we really recover?”

To this non-economist the answer is a big NO.  When we have organizations like the Koch Bros. Americans for Prosperity who are only interested in the prosperity of certain Americans or certain types of Americans, then the “average” American is not only starting from behind but being kept behind.  These folks will be ecstatic if the only places some of us can afford to shop are not Walmart or Target, but the Dollar General and Dollar Tree stores.  They believe those stores are just fine for the rest of us.

This is an open thread.

Maslow's Hierarchy of Needs

Maslow's Hierarchy of Needs

The Widdershins has had a number of posts that have dealt with middle class issues. We’ve gone so far as to say that the middle class has been replaced by the working class. I’m now going to go way out and say that I can see the development of a permanent underclass.

A friend called me today to give me a new telephone number. She’s making a number of adjustments in life in an effort to keep her home out of foreclosure. Fortunately for her, Fl0rida’s foreclosure rate is so high that lenders are working overtime to make it not happen. Her husband is an attorney specializing in the area of wills and trusts. He has downsized his office space for the fourth time in the past few years, moving into the moral equivalent of a walk-in closet. He feels that this should nicely accommodate his clients, since he has not had a single one in the past two months, despite offering attractive prices. My friend works full-time as a nurse in a Quality Management firm, and has hung on to her position, but she can’t make up his lost income. Let’s face it: the middle class is in the midst of a complete meltdown.

Washington does not seem to be feeling our pain. Despite loud and repeated messages from Middle America, they’re either not getting it or they just don’t give a damn. The past year has been dedicated to appeasing banking, Wall Street, and corporate entities. For everyone else? Well, we’ll see if we can get another unemployment extension past dear ol’ Senator Bunning, who is worried about the deficit, doncha know.

The Daily Beast’s Joel Kotkin has an excellent post entitled “Obama’s Middle Class Meltdown”, in which he writes,

“Ultimately, the party that wins in 2010 and beyond will be the one that addresses the real issues of this age—the battle for private sector jobs and upward mobility—that matter to the vast majority of Americans.”

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