“Are things really gettin’ better, like the newspapers say? What else is new my friend, besides what I read?”
— from “What’s Happening Brother?” as performed by Marvin Gaye
Unemployment has declined steadily since late 2009. Wage growth appears to finally be waking from its decades-long slumber, albeit very slowly for lower-income folks. And some industrial and blue-collar companies are so desperate for employees that they are offering sign-on bonuses to new workers.
The Federal Reserve is no longer artificially stimulating the economy. Their plan to progressively raise interest rates up to four times this year speaks to their confidence in an economy finally rebounding from the Great Recession.
On the surface, things seem to be getting better. In the soft underbelly of our economy, well, not so much. Here’s what we mean.
A recent survey found that a record 30 percent of American households, or almost a third of the population, enjoy no nonhome wealth. That means that if you take away the little equity they carry in their homes, they owe more than they own.
The number of households in this situation has been on a steady rise since the late 1960s, with the exception of the late 1990s, when the tech bubble temporarily inflated the net worth of households. What this means is that millions are one catastrophic illness, one serious accident or a few missed paydays from financial ruin. Forget affording college for kids or putting money away. This is why the housing bubble was so intertwined with the Great Recession; the stock market decline was accompanied by a strong real estate decline. A home equity loan may be a last resort for many in this 30 percent group, and if home values suddenly decline significantly, that option is lost.
Many factors are to blame for America’s relatively new “permanent underclass.” Economists often cite stagnating wages for the inflation-adjusted drop in living standards for lower-income Americans. Some cite the lack of participation in the stock market, with household stock ownership being around 10 percent lower than it was 20 years ago. You can’t benefit from a rising stock market if you don’t have the discretionary income to invest.
Those arguments have merit and are a part of the equation. But if I had to offer a primary reason why many Americans can’t get ahead it would be the cost of healthcare.
In 1960, healthcare costs were only 5 percent of GDP. Two years ago, health care costs were almost 18 percent of our GDP. In 2016, health care costs per person in the U.S. were $10,348; in 1960, they were a paltry $146 per capita. On average, healthcare costs have risen faster than both wages and inflation for decades on end. If we solve this conundrum, our middle class may flourish again.
Margaret R. McDowell, ChFC®, AIF®, author of the syndicated economic column “Arbor Outlook,” is the founder of Arbor Wealth Management, LLC, (850.608.6121 – www.arborwealth.net), a “fee-only” registered investment advisory firm located near Sandestin.