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Middle Class Slams Brakes on Spending

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    Middle Class Slams Brakes on Spending

    October 6, 2010

    Middle-class Americans made their deepest spending cuts in more than two decades, slashing spending on such discretionary items as restaurant meals and alcohol during the recession.

    Households in the middle fifth of the population sliced their average annual spending to $41,150 in 2009, the Labor Department said Tuesday in its annual spending breakdown. That was down 3.1% from 2007 and 3.5% from 2008, the steepest one-year drop since records began in 1984. The drop came even as those households' after-tax income remained relatively stable over the two years, at an average $45,199.

    Meanwhile, the poorest Americans spent more as prices for necessities like food and rental housing climbed. Spending rose 5.6% from 2007 to 2009 for the poorest fifth of consumers, the most of any other income group, despite a 5.5% drop in after-tax income to an average $9,956 a household. In some cases, elderly people and others with low incomes dipped into savings or relied on credit to get by.

    "What you're looking at here is people at the bottom trying to hang on," said Timothy Smeeding, public affairs professor and director of the Institute for Research on Poverty at the University of Wisconsin in Madison. "You can't go below a certain level."

    Average annual expenditures for people in all income groups dropped 2.8% from 2008 to 2009, the first spending decline on record. The numbers don't account for inflation, which has been significant in some areas such as food and rent. One consistently rising cost for all income groups was health care, where spending rose 9.6% from 2007 to 2009 as the cost of care climbed.

    "I've become a lot more cautious," said Doug Pendery, who owns a small Cincinnati-based plastics manufacturer and considers himself somewhere in the middle to upper-middle class. He said he has seen health care and taxes eat up a larger share of his income. "You're really not saving more," Mr. Pendery said. "You'd like to [but] your expenses and everything else continue to go up."

    Middle-class households reined in spending mainly on discretionary items. On average, from 2007 to 2009, they cut spending 20.1% on alcoholic beverages, 15.2% on clothing, and 9.5% on restaurants and other food away from home. They also spent less on some groceries, cutting back on items such as fresh milk and cream, as well as seafood.

    Some of the change in spending could reflect a shift to cheaper alternatives, such as picking McDonald's over sushi. Still, the relative austerity reflects a broader retrenching among consumers spooked by high unemployment and a sharp drop in the value of their homes and investments.

    The lowest earners spent 15.4% more on food last year than in 2007, shelling out more for cereals, meat and processed vegetables. Since many in the lowest income group may already rely on discount shops and make few discretionary purchases, it can be difficult for them to scrimp.

    Among the poor, rent expenditures increased 5.3%. Those who managed to stay in homes they owned saw their mortgage payments rise 27.8%, suggesting that policy makers' efforts to reduce mortgage-debt burdens aren't reaching the most needy. Across all income groups, mortgage payments were down 7.6%.

    Judy Sheppers, 69 years old, said she was doing her best to get costs down. Laid off as a receptionist at the end of 2008, Ms. Sheppers relies mainly on monthly Social Security of $1,422, which will put her in the lowest income group when her weekly $133 unemployment benefits run out.

    Ms. Sheppers said her group of friends in Aiken, S.C., who used to meet for cocktails and dinner every couple weeks, has created a more cost-friendly routine now.

    "We've started doing more at-home entertaining, pot-luck-type things," Ms. Sheppers said. "Everyone brings a dish and someone brings a bottle of wine. In a way, that's nice."

    Even the richest fifth of consumers responded to the recession by closing their wallets. Their spending fell 2.6% from 2007 to 2009.

    "While their incomes are stable, their assets have declined," said Luigi Pistaferri, an economist at Stanford University in Palo Alto, Calif. "They're waiting to buy the boat or the expensive watches," and trying to rebuild wealth instead.

    Filed Chapter 7 July 2010
    Attended 341 September 2010
    Discharged November 2010 Closed November 2010

    #2
    I have noted this trend almost everywhere I go.

    'Hub and I have cut our discretionary spending way, way back. Part of it is due to recovering from the BK, but it is also due to the economy. As an example, there is a Mom and Pop Italian restaurant in our town that I used to call and order take out meals that I would pick up after I got off work, and take home. Over the past year or so, I have curtailed that practice greatly. And other customers are evidently following suit. The restaurant used to stay open until 10:00 PM on weekdays, and till 11:00 PM Friday and Saturday. Now they close at 9:00 PM. They used to close for one week in July for vacations; now it is two.
    "To go bravely forward is to invite a miracle."

    "Worry is the darkroom where negatives are formed."

    Comment


      #3
      I continue to see shopping center retail businesses close in my area, as if the Great Recession was just beginning.

      ... Almost any smaller business that started in the last 2 years or so, is closed or going under..it's really amazing to see how many strip centers are almost completely vacant! Older established businesses, like AngelinaCat says have curtailed hours, laid off staff, and dropped services.

      At the ground level, where consumers live and breathe, there is NO FEELING of meaningful improvement.

      Comment


        #4
        I always shake my head when I hear how the economy is doing better; I'd like to know where because its certainly not at my level. Our business is downsizing once again; people losing their jobs, really sad.

        I know I've cut back my spending big time before/during my bankruptcy. I've noticed too the mom and pop places are either closing their doors or cutting back on services. Places that used to be open late now close early and staff is dramatically cut. Not too many "help wanted" ads in the local paper either; mainly temp agencies looking for cheap labor. But I guess if you're unemployed that would be better then nothing.
        Filed Chapter 7: 8/11/2010 341: 9/13/2010 Done!!
        9/14/2010 Trustee Report of No Distribution
        Discharged 11/15/2010 Closed 11/18/2010

        Comment


          #5
          I do not know anyone who is spending money on anything that is not a necessity. I do not know anyone no matter where they work or what kind of education they have that has any job security.

          I can think of at least 10 friends who owe way more on their homes then they are worth even though they bought "smart".

          I can think of 5 couples I know about to lose their homes.

          I can think of many friends who are trying so hard to hang on to their "stuff" rather than take the plunge and declare BK.

          I have watched 3 close couples get divorced over finances in the last 2 years.

          I sometimes look around at what is going on and it all seems so unreal, like a bad dream.

          Comment


            #6
            Every one of our utilities has increased. Property taxes have gone up. Gasoline in this area is hovering around $2.75/gal. Health insurance premiums are going up after the year. There is now a separate real estate listing of just foreclosed properties. Where does it end? The middle class is being pushed out of existance. While the rich are concentrating on rebuilding wealth, we are living paycheck to paycheck without any "extras" just getting by. It is very depressing living like this now compared to ten years ago. It can only get better (maybe).

            There is a film being shot in our town and it is set in 1979. Part of our small downtown area has been made over by the movie company to look like 1979 and boy did that send me back. If we could only turn back time !
            Filed July 2009. Discharged 08/08/2014. Awaiting closing. We made it !!!! Woo-hoo!

            Comment

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