National News

December 18, 2013

AP survey: US income gap is holding back economy

WASHINGTON — The growing gap between the richest Americans and everyone else isn’t bad just for individuals.

It’s hurting the U.S. economy.

So says a majority of more than three dozen economists surveyed last week by The Associated Press. Their concerns tap into a debate that’s intensified as middle-class pay has stagnated while wealthier households have thrived.

A key source of the economists’ concern: Higher pay and outsize stock market gains are flowing mainly to affluent Americans. Yet these households spend less of their money than do low- and middle-income consumers who make up most of the population but whose pay is barely rising.

“What you want is a broader spending base,” says Scott Brown, chief economist at Raymond James, a financial advisory firm. “You want more people spending money.”

Spending by wealthier Americans, given the weight of their dollars, does help drive the economy. But analysts say the economy would be better able to sustain its growth if the riches were more evenly dispersed. For one thing, a plunge in stock prices typically leads wealthier Americans to cut sharply back on their spending.

“The broader the improvement, the more likely it will be sustained,” said Michael Niemira, chief economist at the International Council of Shopping Centers.

A wide gap in pay limits the ability of poorer and middle-income Americans to improve their living standards, the economists say. About 80 percent of stock market wealth is held by the richest 10 percent of Americans. That means the stock market’s outsize gains this year have mostly benefited the already affluent.

Those trends have fueled an escalating political debate. In a speech this month, President Barack Obama called income inequality “the defining challenge of our time.”

Obama also called for an increase in the federal minimum wage, now $7.25. Republican leaders in the House oppose an increase, arguing that it would slow hiring.

Several states are acting on their own. California, Connecticut and Rhode Island raised their minimum wages this year. Last month, voters in New Jersey approved an increase in the minimum to $8.25 an hour from $7.25.

Income inequality has steadily worsened in recent decades, according to government data and academic studies. The most recent census figures show that the average income for the wealthiest 5 percent of U.S. households, adjusted for inflation, has surged 17 percent in the past 20 years. By contrast, average income for the middle 20 percent of households has risen less than 5 percent.

The AP survey collected the views of private, corporate and academic economists on a range of issues. Among the topics were what policy decisions, if any, the Federal Reserve might announce after it ends a policy meeting Wednesday.

Three-quarters of the economists surveyed don’t think the Fed is ready to announce a pullback in its economic stimulus. Speculation has been rising that the Fed will soon scale back its $85 billion in monthly bond purchases because of the economy’s steady gains. The bond purchases have been intended to keep long-term loan rates low to induce people to borrow and spend.

Most of the economists think the Fed will begin slowing its bond buying in January or March.

And most don’t think the economy needs the Fed’s help. Just over half say they believe growth could reach a healthy 3 percent annual pace even without the Fed’s extraordinary help.

As Janet Yellen prepares to succeed Ben Bernanke as chairman early next year, most of the economists expect the Fed to become more “dovish” — that is, more focused on fighting unemployment than on worrying about higher inflation that might result from the Fed’s actions. The Senate could confirm Yellen as soon as this week.

The economists are also confident that U.S. growth is picking up. Three-quarters said the recovery, which officially began 4 1/2 years ago, has yet to reach its peak. And nearly all think the next recession is at least three years away; half think it’s at least five years away.

The economists forecast that growth will average 2.9 percent in 2014. That would be the healthiest annual pace since 2005.

One reason they expect healthier growth is that the effects of tax increases and government spending cuts that kicked in early this year should fade.

A budget bill that passed a pivotal test in the Senate on Tuesday will reverse some of those spending cuts. That should add slightly to economic growth. The bill also removes the threat of another government shutdown next year.

Among the economists’ other views:

— The Obama administration’s health care law will make little or no difference to the job market. About two-fifths said the law would cost jobs. None said it would increase hiring. The law has drawn fierce opposition from many small business owners, who say it will raise hiring costs by requiring companies with 50 or more employees to provide coverage starting in 2015.

— The stock market isn’t in a bubble. While the Dow Jones industrial average reached record highs earlier this year, most economists said that higher profits largely justified the gains.

— Europe will keep growing and avoid a recession in 2014.  But growth will remain so tepid that inflation will be nearly non-existent. Nearly two-thirds of the economists forecast that inflation won’t consistently reach the European Central Bank’s inflation target of 2 percent until 2016.

— Inflation in the United States will remain low for the long run. A majority of economists think consumer inflation won’t consistently meet or exceed the Fed’s 2 percent target level until 2015 or later.

Economists appear to be increasingly concerned about the effects of inequality on growth. Brown, the Raymond James economist, says that marks a shift from a few years ago, when many analysts were divided over whether pay inequality was worsening.

Now, he says, “there’s not much denial of that ... and you’re starting to see some research saying, yes, it does slow the economy.”

1
Text Only
National News
  • Indian film awards arrive in Tampa, Fla., but why?

    The so-called Bollywood Oscars have been held in Macau, Singapore, London — and now, Tampa?

    April 23, 2014

  • Indictment: Prosecutor targeted in kidnapping plot

    A North Carolina prosecutor was the intended target of an elaborate kidnapping plot, but the kidnappers looked up the wrong address on the Internet and abducted the prosecutor’s father instead, according to an indictment released Tuesday.

    April 23, 2014

  • Republican activists push party on gay marriage

    As bans against gay marriage crumble and public opinion on the issue shifts rapidly, some Republicans are pushing the party to drop its opposition to same-sex unions, part of a broader campaign to get the GOP to appeal to younger voters by de-emphasizing social issues.

    April 23, 2014

  • Missouri executes inmate for 1993 farm slaying

    Missouri executed an inmate early Wednesday only a few miles from the farm where prosecutors say he orchestrated the 1993 killing of a couple whose cows he wanted to steal.

    April 23, 2014

  • 10 Things to Know for Wednesday

    Your daily look at late-breaking news, upcoming events and the stories that will be talked about Wednesday.

    April 22, 2014

  • A bipolar doctor probes the brain on 'Black Box’

    ABC’s brainy new medical drama “Black Box” does a neat trick: It dares viewers to imagine for themselves the cost-benefit ratio of addiction, and does it without taking a firm stand.

    April 22, 2014

  • Courthouse violence unpredictable despite security

    When Utah’s new federal courthouse opened last week, it came with security improvements that are becoming standard around the country: separate entrances and elevators for judges, defendants and the public; bullet-resistant glass and paneling; and vehicle barricades to keep car bombs at bay.

    April 22, 2014

  • Lucey is tops in Iowa’s ‘Beautiful Bulldog’ event

    Lucey is a slobbering 18-month-old pooch whose human family dreams of making her a therapy dog.

    April 22, 2014

  • Cuban-American leaders helped ’Cuban Twitter’

    Leaders with the largest nonprofit organization for young Cuban-Americans quietly provided strategic support for the federal government’s secret “Cuban Twitter” program, connecting contractors with potential investors and even serving as paid consultants, The Associated Press has learned.

    April 22, 2014

  • 10 Things to Know for Tuesday

    Your daily look at late-breaking news, upcoming events and the stories that will be talked about Tuesday:

    April 22, 2014