Middle class consumers are now in the minority.
Call it income inequality, call it a demographic shift – whatever the reason, the Pew Research Center reports its analysis of American household income data shows that the middle class is now outnumbered by a combination of the classes above and below it.
Pew says the shift occurred early this year. At that time, 120.8 million adults were in middle-income households, compared with 121.3 million in lower- and upper-income households combined. Pew researchers say it could signal a tipping point for the country.
The middle class has long been an American ideal. In the years after World War II, its ranks swelled with a generation that fought a war and lived through a depression. Politically, it was seen as a stabilizing force for democracy.
Driving economic growth
Economically, it was a powerful engine for growth, increasing demand for entry-level homes, cars, furniture, and an endless list of household goods.
Since the financial crisis of 2008, many politicians have decried the shrinking middle class, with more consumers going deep into debt and struggling just to keep their heads above water.
What has happened, the researchers say, is that some in the middle class have now fallen into the lower class, but even more have moved into the upper class.
“Fully 49% of U.S. aggregate income went to upper-income households in 2014, up from 29% in 1970,” the authors write. “The share accruing to middle-income households was 43% in 2014, down substantially from 62% in 1970.”
New economic realities
Part of the shift can be tied to the new economic realities facing middle class consumers, who have fallen behind since the financial crisis. In 2014, the Pew report says, the median income of these households was 4% less than in 2000.
Not only did incomes decline, but because of the housing crash many middle class consumers have seen their net worth drop, either because their home lost value, or because they lost their home to foreclosure.
Meanwhile, those who are doing well are doing very well. In 2015, 20% of American adults were in the lowest-income tier, up from 16% in 1971. On the opposite side, 9% are in the highest-income tier, more than double the 4% share in 1971.
What exactly is middle class these days? The Pew researchers say they define it this way: adults whose annual household income is two-thirds to double the national median, about $42,000 to $126,000 a year in 2014 dollars for a household of three.
Are you in the middle class? You can find out using this calculator.