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Shaky Ground
The middle class is getting stretched.
Their wages have stagnated and now they’re pushing back on the price increases of the last several years.
Look no further than Lululemon, Nike, LVMH (owner of Tiffany’s, Moet champagne, Rhianna’s Fenty Beauty, etc.), Sherwin Williams, and Polaris who makes ATVs – is there a more discretionary purchase??
These companies squarely serve the middle class or aspirational shopper. And their sales are starting to suffer. Their customers are choosing between groceries, toilet paper, kids sports, making memorable experiences and what they are seemingly deeming as overpriced goods.
This is no longer a low-income phenomenon.
Purchasing actions of the middle class are evidence of the cost squeeze is climbing up the ladder.
With hiring stalling and limited opportunity for promotions:
The middle-class American Dream of working hard to reach your aspirations - purchases or otherwise – has been put on hold.
The Dream may be on shaky ground as Brookings Fellow and author, Homi Kharas put it. He says:
“Middle-class life satisfaction rests on two pillars. The first is the idea that hard work and self-initiative will lead to prosperity.
The second is that thanks to this prosperity, the children of middle-class families will enjoy even more opportunities for the good life. Both pillars are shaking.”
It’s the first pillar that is top of mind these days.
Hard work doesn’t necessarily feel like it is paying off for many.
Wages - Where There Is A Will There Is A Way
Don’t get me wrong, the monthly government wage data tells an inspiring story.
Wage growth has outpaced inflation for more than a year as the rise in prices has slowed. That means we get to keep more of the money we earn.
It’s a trend that should continue. I mean, spending changes can be a powerful motivator for companies to offer discounts (like at the companies above), which pushes prices lower, supporting a continued moderation in inflation.
Still, the reason the middle class is feeling the pressure is because their wages have only marginally improved since prior to the pandemic.
A 3% raise spread over a four year period doesn’t feel very prosperous, even if that is your raise after inflation (“real” wage growth subtracts the impact of inflation on wages). See chart below.
Making this harder for workers to digest is that the rise of corporate profits, produced in part by their input, has not been shared with them in the form of compensation adjustments. See chart below.
Compensation is almost always a top three reason for why people quit their jobs.
Workers may be more inclined to accept the status quo on pay and stay put for fear of the time it takes to find a new job in a stalled hiring environment.
Yet, the last chart suggests that compensation is a solvable problem… assuming there is a willingness to solve it.
Related: Is Job Stability Gone Forever?