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Thursday, October 26, 2006

Study: Middle Class Caught In Fiscal Crunch

America’s middle class families are caught in an unprecedented crunch, according to a recent report by the left-leaning Center for American Progress.

Despite a growing economy, their incomes have remained stagnant or flat. And because prices for big ticket items such as housing and health care have gone through the roof, families are not able to put away a rainy day fund. Instead, middle class families have had to take on more debt to maintain their basic needs and, as a consequence, have been unable to save. Taken together, these trends have left families increasingly vulnerable to the impact of an economic emergency, such as unemployment or a medical emergency.

According to the report, more families are more vulnerable today to unexpected events such as a layoff or a medical emergency. A few stark indicators of the precarious financial position of America’s middle class provide a much-needed reality check, highlighting why so many families feel economically insecure today. Over the past five years, the number of families with enough resources to weather a layoff or a medical emergency has declined dramatically, wiping out the gains in financial security that many families experienced in the 1990s.

The study found that five years into an economic recovery, average job growth is one-fifth that of previous business cycles and wages are flat when inflation is factored into the equation. At the same time, the cost of families’ top five expenditures— medical care, housing, food, household operations and cars—have risen more than twice as fast as the cost of the bottom five items. To maintain their day-to-day consumption, families took on a record amount of debt equivalent to 126.4 percent of disposable income in the first quarter of 2006.


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