There’s been a lot of optimism about the economy recently, with both production and jobs increasing at good rates. But how widespread is this economic improvement? NC State University economist Mike Walden answers.
“We have a new study just released from the Federal Reserve that directly addresses that question, and the answer is ‘not very much,’ at least yet. If we look at all the major economic measures gauging the health of the economy, they have been improving.
“But if you divide households between those in the upper 5 percent of the income spectrum and then the rest of us, the 95 percent, what you see is that the upper 5 percent are really the ones who are benefitting. We are seeing their incomes go up, we are seeing their spending go up, we are seeing their investments go up. And we are not seeing … those same gains for the other 95 percent of households.
“One of the big reasons is that the other 95 percent of households going into the recession, they had unsustainable debt levels. They were the ones who really had to reduce their debt to get into a sustainable position. And those households have done that, but they have had to do that by tightening their belts, reducing their spending, paying down on debt.
“So that’s one of the big reasons this Federal Reserve study says is accounting for the difference between the upper 5 percent and the rest of the 95 percent. But the good news is that that 95 percent have tightened their belts, their debt loads are down, and so now we are cautiously optimistic that prosperity will begin to spread to more households.”