Axios Macro

A white telescope

Question: How have the bottom half of American households fared in recent years? The answer is quite well β€” at least as far as income growth is concerned. More below.

  • Plus, why consumers are more uncertain about home prices than ever before.

Situational awareness: An index of wholesale prices β€” those eventually passed along to consumers β€” rose 0.2% in October, slower than the 0.4% economists anticipated, fanning hopes that inflation may have peaked.

Today's newsletter, edited by Javier E. David and copy edited by Katie Lewis, is 523 words, a 2-minute read.

1 big thing: Pay growth beneficiaries

Note: "Middle 40%" indicates those between the 10th and 50th percentiles. Data: Realtime Inequality; Chart: Axios Visuals

The working class has seen notable inflation-adjusted income gains since the pandemic hit, recent data suggests.

Why it matters: The aftermath of the COVID-19 recession has been characterized, in part, by strong pay gains for lower-wage workers. That's a break from decades of sluggish income growth for the bottom half of households.

The intrigue: During the years-long recovery from the 2008 recession, the middle class experienced modest income gains. But the bottom and top of the distribution saw gains stall.

  • What's happening now is the opposite: The top and bottom are seeing big gains. But the middle class? Less so.

Details: University of California, Berkeley economists Thomas Blanchet, Emmanuel Saez and Gabriel Zucman revealed those findings in a paper updated this month.

  • They are behind Realtime Inequality, whose data we cite in the above chart. The project aims to provide growth statistics by income group.

What they're saying: Booming wage growth for the bottom 50% of Americans since the pandemic caused "a reduction in wage inequality among the bottom 99%, a break from the trend prevailing since the early 1980s," the authors write.

Flashback: When COVID hit, incomes for the bottom 50% were boosted by expanded unemployment benefits, stimulus checks and other fiscal support.

  • When those measures disappeared, income growth declined from the peak. But income growth continued. That's a reflection of the strong labor market and higher wages for lower-wage workers, Zucman notes.

What to watch: The Fed is actually looking to cool wage gains to bring pay bumps in line with the level "that's sustainable and consistent with 2% inflation," chair Jerome Powell said earlier this month.

The bottom line: Stagnant pay gains among the working class were a "robust feature" of the 2008 recession, the authors write.

  • The opposite has been true for the pandemic-era recovery.

2. Home price uncertainty

Data: Survey of Consumer Expectations,Β Federal Reserve Bank of New York; Chart: Tory Lysik/Axios Visuals

Historically, housing has been the main asset that middle-class Americans use to build their wealth. Right now, however, it's more volatile and unpredictable than ever.

Why it matters: If you ask Americans β€” as the New York Fed does every month β€” how much home prices are going to rise in value over the next year, they're generally pretty consistent. Around 50% of the answers fall in a roughly 4.5-point range, between 1.5% and 6%.

  • But now, that range has more than doubled to 9.4 points β€” a clear sign of uncertainty and doubt.

Between the lines: It's very uncommon for Americans to predict an outright decline in house prices. But now a growing number are doing just that.

  • The bottom 25% say prices are likely to fall by at least 2.45% over the next year.
  • By contrast, the top 25% think that prices are likely to rise by at least 6.92%.

The big picture: The price of everything, including housing, tends to go up during times of high inflation.

  • For homebuyers, however, the cost of buying a home (in terms of monthly mortgage payments) can be going up even if the value of the home, in dollar terms, is going down β€” which means it's no wonder that forecasts are so febrile.

The bottom line: "Safe as houses" isn't very safe right now.

πŸ—“ Join Courtenay and Axios' Niala Boodhoo tomorrow at 8am ET in Washington, D.C., for an event on equity and the economy.

  • Guests include Council of Economic Advisers member Jared Bernstein and National Bankers Association president and CEO Nicole A. Elam. Register here.