The American middle class has absorbed a steep increase in
the cost of health care and other necessities as incomes have stagnated over
the past half-decade, a squeeze that has forced families to cut back spending
on everything from clothing to restaurants. Health-care spending by
middle-income Americans rose 24% between 2007 and 2013, driven by an even
larger rise in the cost of buying health insurance, according to a Wall Street
Journal analysis of detailed consumer-spending data from the Bureau of Labor Statistics.
That hit has been accompanied by increases in spending on
other necessities, including food eaten at home, rent and education, as well as
the soaring cost of staying connected digitally via cellphones and home
Internet service. With income growth sluggish, discretionary spending on things
like clothing and movies, live shows and amusement parks has given way.
The data—drawn from 14,000 households that either keep
diaries on their spending for two weeks or agree to quarterly interviews—helps
explain why so many retailers are turning in persistently lackluster results,
and why the household-products business has shown virtually no growth for
years. It also helps illuminate why the consumer-led U.S. economy has been so
slow to rebound from the financial crisis.
The rise in health-care spending preceded the Affordable
Care Act’s requirement that most Americans have health coverage and that
insurance companies cover existing conditions, both of which kicked in this
year. The impact of other parts of the overhaul, like the requirement that
family insurance policies include children up to the age of 26, isn’t clear.
Consumer spending continues to make up just over two-thirds
of the U.S. economy. But where households spend that money has shifted
significantly. To see how it has moved, the Journal analyzed Labor Department
data on 2013 out-of-pocket spending for the middle 60% of the population by
income—households earning between about $18,000 and $95,000 a year, before
taxes.
The data show they are losing ground. Overall spending for
the group rose by about 2.3% over the six-year period from 2007, even as
inflation totaled about 12%. At the same time, income for the group stagnated,
rising less than half a percent.
With health care and other costs rising, these consumers
spent less on furniture, entertainment, clothing and even child care, the
Journal analysis found. This year, overall health-care spending is expected to
continue growing at a modest pace, but government projections suggest U.S.
households may spend slightly less, as more people obtain insurance, premium
subsidies or Medicaid coverage.
Spending on mobile-phone service, meanwhile, has soared,
rising nearly 50% since 2007, the year the iPhone came out and data plans
became more commonplace. Similarly, spending on home Internet service has
soared by more than 80%.
To make up the difference, middle income Americans have cut
costs where they can. Spending on event admission and fees has fallen 16.5%,
while spending for a broad category that includes boats, motor-homes, cameras
and party rentals has fallen 31%.
Together, food, housing and health care accounted for about
56% of consumer spending for middle-income Americans, up from 54% in 2007.
Transportation, which accounted for another 19% of the total, was largely flat
during the period, as Americans spent less on auto-loan interest and new car
payments, but more on gasoline.
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