U.S. middle class strong but under stress

The most important economic trait about America isn’t our multinational companies, billionaires or high-profile celebrities and sports stars.

It’s that we have an unusually large and influential middle class.

Many European countries and a few other nations like Japan, Singapore and some Persian Gulf states also have large middle classes, but their numbers are spread among smaller populations. China and India count more people and enjoy rising prosperity, but their middle classes aren’t on par with ours and won’t be for a long while.

That makes the U.S. middle class unique, but it’s also under strain. Here are some ways, including some surprising ones, to describe members of today’s middle class:

» They’re not in the majority

A long-held assumption is that most Americans belong to the middle class, but that doesn’t seem to be the case anymore. In a recent study by the Consumer Federation of America and financial-firm Primerica, using Federal Reserve data, the researchers defined middle-class Americans as those with household earnings between $35,600 and $94,600. Yet this group comprises only 40 percentof U.S. households, with a larger portion coming in closer to the lower income range than the upper one.

You would need to broaden the income ranges to between $30,000 and $100,000 to corral 50 percent of the population, but it’s debatable whether a middle-class lifestyle can be had on income near $30,000.

Another way to look at it is by examining taxpayer numbers. According to the Internal Revenue Service, about 66 percent of Americans and 68 percent of Arizonans reported adjusted gross income of $50,000 or less. Granted, AGI runs less than total income thanks to various deductions, credits or exclusions, but the two tend to move together. Only 11 percent of Arizona households reported AGI above $100,000. » They’re under assault Middle-income Americans face tough economic pressures. That’s no great surprise after two recessions during the past decade and an unemployment rate that has held stubbornly above 8 percent.

“The American middleclass has recently grown weaker as a result of several trends, particularly the stagnation of their incomes and increase in their job insecurity,” noted CFA and Primerica in the report. “(They) earn less than they did a decade ago, and little more than they earned two decades ago.”

Adjusting everything to 2010 dollars, the researchers found that typical middleclass household earnings were $49,445 in 2010 — down from $53,164 in 2000 and little changed from $48,423 in 1990.

» They’re helped by mar- ing a toe in the stock market, according to a separate survey conducted by the CFA and Primerica.

» They lack a financial cushion

Federal Reserve data show the typical middle-class family with financial (non-housing) assets of $27,000 in 2010, including about $3,900 in checking or savings accounts. That’s not much to protect against a job loss. Financial advisers routinely suggest building a reserve capable of meeting expenses for at least three months and preferably a full year. Along with housing and financial investments, the other notable assets were motor vehicles, with a typical value of $17,000.

Among hopeful signs, middle-class households largely appear able to manage their debts, according to the CFA/ Primerica study, and lower interest rates are enabling some people to refinance mortgages. But as a negative, the net worth of a typical middle-class family fell 35 percent from 2007 to 2010, from an average $145,600 to $94,700. Net worth measures household assets less liabilities. It slumped so much because assets declined much more sharply than debts.

The CFA/Primerica report concluded that most middleclass Americans are not financially desperate, having made some progress whittling down debts and sticking to budgets. But they also have been left poorer by the recent recession, with a lot of financial rebuilding to do.