The middle   WORKING class is getting its spending power back — but progress is 'fragile'

Gabriella Cruz-Martinez
·Personal finance writer
Sat, September 2, 2023 

America’s middle class is getting its spending power back after a year and a half of decades-high inflation.

But it still lags behind the levels from before the pandemic.

A new household budget index from Primerica, a financial services company, found that the purchasing power of middle-income households — defined as those earning between $30,000 and $130,000 a year — increased to 97.5% in July, up from 97% the month prior.

The improvement, however, is still below the index's baseline of 100% that occurred in January 2019. Any reading under that threshold shows consumers' spending power is at a deficit.

The modest uptick comes after credit card debt surpassed $1 trillion for the first time last month and a string of recent data showed that more consumers are having trouble paying their debts on time.

Read more: Personal loan vs. credit cards: What to use for an emergency?

"We’re seeing some climbing out of the deepest of the difficulties after the pandemic. We’ve seen inflation slowed down, and we’ve seen earned incomes begin to increase. Both are positives compared to the way things were previously," Primerica CEO Glenn Williams told Yahoo Finance. "I think the important thing to realize is that while things are not getting as bad as fast as they were, they’re still not necessarily getting good."

Eva Cevallos with her 11-month-old daughter, Quinn, pays with a credit card, as she shops at the Walmart Supercenter store in Rosemead, Calif. (Damian Dovarganes, AP Photo)
'Families have been underwater for 44 months'

Inflation has been dragging middle-income households underwater for over a year, according to Primerica’s data.

American’s spending power dipped to a low point of 85.6% in June 2022, the survey showed, down from its high of 102.8% in November 2020. The decline represented six years of gains in purchasing power lost in 18 months, Williams said.

That sharp decline in June of last year coincided with consumer prices increasing 9.1%, the largest 12-month increase since November 1981. Though inflation has cooled since then, households have yet to fully recover from the blow.

"The index is not yet back to 100. And when you get to 100, it simply means that the families have enough earned income in that month to cover their expenses," Williams said. "They didn't make up for the lost ground."

According to Primerica’s data, in the 55-month period the index covers going back to 2019, middle-income households have been at a spending deficit for roughly 44 of those months.

"For 44 of those months, families have been underwater, which means they didn't have enough earned income to cover their expenses," Williams said. "That spending comes either through withdrawal of savings or using credit."

'The success we’re beginning to see is extraordinarily fragile'

While household finances have made some progress, those gains may not last long.

Credit card balances hit $1.03 trillion, up 4.6% from the previous year, the Federal Reserve of New York revealed earlier this month. Similarly, the Federal Reserve of St. Louis reported outstanding credit balances had surpassed $1 trillion. Both indicators were record highs.

A separate study found that 51% of credit card borrowers couldn’t pay off their entire balance each month and let debt roll over from one month to the next, accruing interest. That was the first time that the share of Americans revolving their debt was higher than those paying off their bills on time, J.D. Power researchers noted.

And Macy’s said last month its second quarter credit card sales were down 36%, with the retailer writing off many of the ballooning balances of consumers unable to pay their bills.

"I think the success that we're beginning to see is extraordinarily fragile. And I think that the credit card balances that we're seeing today at record levels are directly connected to those months of those families being underwater for the last 44 months," Williams said. "And using credit cards to bridge the gap each month because their income was not keeping up with inflation."


Interest rates on credit cards have surged to record highs following the Federal Reserve’s efforts to tame inflation. The average rate on a credit card is now above 20%, according to Bankrate, matching 38-year highs.

For folks with revolving credit debt, accruing interest can add up fast. For instance, if you have a credit card with an APR of 20.60% and want to pay off $3,000 in debt within 24 months, you’ll pay $153 monthly. Over that time, you’ll accrue roughly $685 in interest. That’s cash you could be using for other expenses.

Worsening the financial circumstances for many younger Americans is the end of federal student forbearance come October. According to Experian, the average student loan borrower will have to make a payment of $203 once payments resume.

"So you've got challenges from the past, which I think are directly related to the credit card balances and then you do have the other potential challenges of the future. The one that's staring so many families in the face right now is the beginning of loan payments and student loan payments," Williams said.

"There's still a tremendous amount of progress that needs to be made for these families to be out of harm's way."

Gabriella is a personal finance reporter at Yahoo Finance. Follow her on Twitter @__gabriellacruz.

THERE IS NO MIDDLE CLASS , NOR CONSUMER CLASS,  ITS A FALSE LABELING OF THE POST WWII WORKING CLASS. LIKE SO CALLED COLOR OF YOUR COLLAR WHITE, BLUE, PINK. OR THE SO CALLED COLOUR OF THE WORKING CLASS; WHITE.