As the rift widens between the rich and the poor, US policymakers need to drop the political games and help those struggling to survive.
TO GIVE you an indication of how deeply the jobs crisis is affecting Americans, Hallmark has just released a new range of sympathy cards for workers who have been laid off. Some take a light-hearted approach: "Don't think of it as losing your job," one card reads. "Think of it as a time between stupid bosses." Others are more heartfelt: "It's hard to know what to say at a sensitive time like this," another card says. "How about, 'I'm buying'?"
The fact that Hallmark believes that people will spend $US5.99 on a card for their unemployed friends, or that those who have been retrenched would feel comforted by knowing that their friends have $US5.99 to spend on a card, is telling. It highlights the growing divide between rich and poor in the US and the disappearance of the middle class.
Economists are calling it the hourglass economy. High-end retailers like Ralph Lauren, Tiffany & Co and Estee Lauder have grown net sales quarter-on-quarter by 33 per cent, 30 per cent and 13 per cent respectively. At the other end of the spectrum, bargain stores such as Costco and Dollar Tree have lifted their net sales quarter-on-quarter by 16 per cent and 12 per cent respectively. However, the stores that typically target middle America are struggling. Target could only manage a 5 per cent boost to its quarter-on-quarter sales, while Gap mustered a despondent 2 per cent rise in net sales. Moody's says the top 5 per cent of earners in the US account for 37 per cent of the spending, up from 25 per cent two decades ago.
While that might boost the fortunes of Tiffany and Chanel, the spending is not spread across enough of the population to prop up the economy.
A Time magazine poll released this week shows us why middle America isn't spending and it comes down to one thing job security. Since 2008, 77 per cent of those surveyed are now more concerned about outsourcing of jobs to other countries, while 54 per cent are worried about being able to find a new job if they lose theirs. Americans are really feeling the pinch. About 40 per cent say they have used retirement savings to pay bills, 29 per cent have opted to borrow from family or friends to pay those bills and 13 per cent say they have gone hungry because they could not afford food. Furthermore, 7 per cent have lost their home because they could not pay their mortgage and 34 per cent say they have been unemployed against their choosing. Almost two-thirds say would happily take a pay cut if it meant they could keep their job.
It does not help instil confidence in Americans when they hear US Federal Reserve chairman Ben Bernanke this week tell a Congressional panel that the economic recovery "is close to faltering". Where was this so-called recovery? they might well ask. Bernanke says the Fed has done as much as it can for the moment to give people access to cheap money and he is right. The problem isn't the cost of finance, it is demand.
You can pull all the economic levers you want to make finance cheap and encourage people to spend but if you don't offer job security and actually create jobs then people aren't going to spend.
That is why it is crucial that Congress stops the politicking and passes President Barack Obama's $US447 billion ($A466.8 billion) jobs bill.
If the Republicans block Obama's American Jobs Act on the grounds that it includes higher taxes on the wealthy then, as the President pointed out on Tuesday, everyone's taxes will rise. That is because the payroll tax cut that was agreed to last year will expire. The bill is designed to help galvanise middle America. Those tax cuts would be extended for the middle class but eliminated for those earning more than $US200,000 a year and couples on more than $US250,000 a year.
Obama has spent the week in what would be considered enemy territory, selling his jobs bill in Governor Rick Perry's home state of Texas. By all reports he has been met with a favourable reception.
That is supported by an ABC/Washington Post poll released yesterday, which shows 49 per cent of the country trust Obama to handle job creation compared to 34 per cent who believe Republicans would do a better job. A month ago, before the jobs bill was released, that figure was 40-40. The country could not be sending a stronger message for policymakers to get on with the job. It behoves them to listen.
The poll also showed the approval rating of Congress had dropped to its lowest level since the mid-1970s, and that 8 out of 10 are dissatisfied with the way the country's political system is bumbling along. If Republicans think the obstructionist tactics are evoking a groundswell for change then they have misread the tea leaves the poll shows that more people blame the Republicans in Washington for the situation than they do the President.
Obama is showing an understanding that he must make more trips to states that he may have no chance of winning at next year's election but whose voters need to know that the hope he spoke of last time is more than just a clever catchphrase.
The President has also taken to Twitter to sell his jobs package. His "Tweet for Jobs" campaign helps you find House Republicans based on your location and offers you one of three tweets to send them with the hash tag #passthebill.
Obama knows he needs to show he is creating jobs if America is to give him a second term in the White House. Otherwise he is likely to be the largest recipient of Hallmark's latest marketing venture.
EMAIL: mathewmurphy81@gmail.com
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Frequently Asked Questions about this Article…
What does the article mean by an “hourglass economy” and why should everyday investors care?
The article uses “hourglass economy” to describe widening income polarization where spending is concentrated at the top and bottom but the middle is shrinking. It cites quarter‑on‑quarter net sales gains for high‑end names (Ralph Lauren +33%, Tiffany & Co +30%, Estée Lauder +13%) and for discount operators (Costco +16%, Dollar Tree +12%), while middle‑market names like Target (+5%) and Gap (+2%) lag. For investors, this pattern matters because it can shift which retail and consumer stocks benefit from consumption trends.
How is job insecurity in the US affecting consumer spending, according to the article?
The article points to a Time survey showing rising job insecurity: since 2008, 77% are more concerned about outsourcing and 54% worry about finding a new job. As a result about 40% have tapped retirement savings, 29% borrowed from family or friends, 13% have gone hungry due to lack of money and 7% lost their home. That squeeze on household finances reduces demand and helps explain why middle‑America spending is weak.
Which retailers are reported as benefiting from the split in consumer spending?
The article highlights luxury and prestige retailers and discount chains doing relatively well: Ralph Lauren, Tiffany & Co and Estée Lauder posted strong quarter‑on‑quarter net sales increases (33%, 30% and 13% respectively), while discount/bargain stores Costco and Dollar Tree lifted net sales by 16% and 12%.
Why are middle‑market retailers like Target and Gap struggling while luxury and discount stores grow?
The article links the struggle of middle‑market retailers to concentrated spending at the top end of the income ladder and a shrinking middle class. Moody’s data cited says the top 5% of earners now account for 37% of spending (up from 25% two decades ago), so luxury and discount segments capture more consumer dollars while stores that traditionally target middle America face weaker demand.
What is President Obama’s $447 billion jobs bill and how might it affect middle‑class spending?
The article describes the $US447 billion jobs bill as legislation intended to galvanise middle America by extending payroll tax cuts for the middle class while eliminating the cuts for those earning more than $US200,000 (or couples over $US250,000). If passed, it aims to boost job security and household income for middle earners, which could help revive consumer demand; if blocked, the previous payroll tax cut would expire and taxes would rise on many households.
How do remarks from Federal Reserve chairman Ben Bernanke factor into the investment outlook discussed in the article?
Bernanke told a Congressional panel the economic recovery “is close to faltering,” and the article notes the Fed has done what it can to make finance cheap. The piece argues the core problem is weak demand and job insecurity, so even accommodative monetary policy may have limited success until jobs and confidence improve—an important context for investors watching macro signals.
What do public polls cited in the article suggest about political momentum for job‑creation policies?
An ABC/Washington Post poll cited shows 49% of people trust Obama to handle job creation versus 34% who trust Republicans, up from a 40/40 split before the jobs bill was released. The article also says Congress’s approval rating dropped to its lowest since the mid‑1970s and eight in ten are dissatisfied with the political system—indicating public pressure for policymakers to act on jobs.
How are households coping financially with unemployment and what are the broader market implications?
According to the article, many households are taking extreme measures: about 40% used retirement savings to pay bills, 29% borrowed from family or friends, 13% went hungry because they couldn’t afford food, and 7% lost their home for failure to pay the mortgage. These stresses constrain consumer spending and savings, which can depress demand across the economy and affect companies that rely on middle‑class customers—an important consideration for everyday investors monitoring consumer‑driven sectors.
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