Why you're still poor as the Dow nears 17,000

Wall Street is celebrating, but much of America is still struggling with declining household income, higher prices for products and low interest rates for savings.

By MSN Money Partner Jul 1, 2014 4:02PM
Image: Woman holding empty purse © image100/CorbisBy Charles Passy, MarketWatch

The Dow Jones Industrial Average ($INDU) is a hair's breadth from crossing the 17,000 mark. But is that really reason to celebrate?

The sentiment on Wall Street may be that our long national fiscal nightmare is finally over, but the stock market is just one barometer of prosperity, many economists and consumer experts argue. 

And the problems that have plagued the U.S. in recent years -- declining household income, surging prices for many key goods and services, low interest rates for savings -- remain very much in place, they say.

Add to that the fact that many investors started losing faith in recent years -- and went to cash at the very time the market began its bullish run in 2009 -- and an equally scary reality emerges: Market milestones may not reflect what many Americans are seeing in their monthly portfolio statements.

The bottom line: We’re still suffering a crisis in confidence -- literally. The Consumer Confidence Index, which translates consumer views on the economy into a numerical formula, remains well off its historic highs. Today, the index stands at 85.2. By contrast, during the peak of the dot-com boom in 2000, the index registered as high as 144.7.

The news is not all bad, of course. The unemployment rate, currently at 6.3 percent, is well below its past-decade high of 10 percent, in October 2009. And while consumer prices have climbed since October 2007, they have done so at a fairly modest clip. In the past year, for example, prices have increased by 2 percent,, according to the Bureau of Labor Statistics.

Plus, many savers have seen respectable increases in their retirement portfolios over the past five years. Vanguard, for example, reports that the average 401k account balance rose from $56,000 in 2008 to $102,000 in 2013. And even factoring in contributions, Vanguard research analyst Jean Young reports that one study of 401k participants, conducted by the firm, showed an average annual return rate of 12.7 percent over the same five-year period. Granted, such a yield is nothing to write home about -- by comparison, the Dow was up at least 20% in five of the 10 years during the '90s -- but Young adds that it's a solid figure given the low inflation over the period.

Still, many financial experts say that there's a reason why the good news doesn't quite register in the minds of consumers and investors. Call it the Great Disconnect that has followed in the wake of the Great Recession. And it's a story that experts say can be told in one sobering statistic after another.

Begin with income. On the one hand, wages have basically kept pace with inflation in recent years. But on the other, unemployment and underemployment have affected overall household income to the point that there's been about a 6 percent dip since March 2009 to the current median figure of $52,959 (after adjusting for inflation), according to Sentier Research, which tracks income. "It's not a pretty picture," says Sentier principal John Coder.

And what about expenses? While the Bureau of Labor Statistics may say prices are in check, some consumer watchdogs say what applies to overall prices may not apply to some key expense categories.

Consider the cost of fuel: A gallon of gas went from $2.40 in 2009 to $3.57 in 2013, according to the U.S. Energy Information Administration. Or medical care: The employee's share of annual premiums for family coverage has increased from $2,412 in 2003 to $4,565 in 2013, according to the Kaiser Family Foundation. Or even a pound of bacon: In just the past year, the price in U.S. cities has increased by 16.4 percent to $5.69, according to the Bureau of Labor Statistics.

But what about stock market returns offsetting some of this economic stress? The relatively good news on the 401k side -- at least as reported by Vanguard -- does not necessarily jibe with the broader reality that many financial advisers say they're seeing. They say they're meeting with many first-time clients who have withdrawn large sums from IRA or traditional brokerage accounts during the past few years and have paid the price in missed returns as a result. "Almost everyone coming in to me today has tons of cash," says Lee Munson, founder of Portfolio LLC, a New Mexico-based investment firm.

And there's some data to back up those adviser claims: In the five-year period through January 2014, the Investment Company Institute reports, outflows from equity mutual funds outpaced inflows in 30 out of the 60 months -- meaning money was being withdrawn from the market at a fairly significant rate.

Of course, at one time, "going to cash" wasn’t so bad. In fact, it's the way a generation of retirees saw themselves through their golden years, living off CDs and other fixed-income investments that paid respectable yields. But therein lies what many financial experts say is the greatest cause for concern over the past several years. A little more than a decade ago, the interest rate on a five-year CD was well above 5 percent, according to Bankrate.com; today, savers are lucky if they can get 2 percent.

It's a sea change that has shaken the traditional model of retirement planning, says Greg McBride, senior financial analyst of Bankrate.com. "The sharp reversal in interest rates has dramatically cut the buying power of retirees and anyone else dependent on a fixed income," he says.

Still, McBride says that if someone saving for retirement was smart enough to stick with stocks through the past five years, they may be OK, other economic factors aside. But McBride is just not sure how many investors had the wisdom to do so. "The train may be back at the top of the mountain," says McBride, "but you're not there unless you stayed on the train."

More from MarketWatch

Jul 1, 2014 5:15PM
The elephant in the room is the devaluation of the dollar through massive Fed money printing. Inflation by it's definition is an increase in the money supply which is what Q.E is. Higher prices are a symptom of inflation. Too many dollars are chasing the same goods and services. There is a reason why the government excludes food and gas from the current CPI. think about it. The illusion is there. Everything is up tuition, insurance, food, gas, clothing, rent...everything.  If you use a more accurate 1970's era CPI model you will find out that inflation has been double digits for almost the entire B.O. tenure. The only reason the DOW is close to 17,000  is because of cheap money flowing into markets, the Fed has inflated equities in order to give the illusion that there is a legitimate recovery...there isn't. Every facet of the economy is stagnate...employment, exports, productivity. Meanwhile personal consumption is up. Personal debt is up and savings is almost none existing. To make matters worse the baby boomers have entered the retirement  phase, they will eat up a great portion of current GDP with SS, Medicare, Medicaid and other entitlements. The reason interest rates are so low is because the government can't service the debt. The nation is broke and deeply in debt. People need to understand that. There are two options default or print money. The government has taken option 2, print money. They are destroying the currency in the process by eroding it's purchasing power in order to service the debt and compete with other nations who are also engaged in currency wars by devaluation their currency to make exports cheaper..Japan, Europe, China. At the same time Russia and China have embarked on a Gold buying crusade, purchasing thousands of tonnes every year. They are conducting open trades without converting to dollars first, such as the new natural gas trade agreement with Russian giant Gazprom. Both countries have been petitioning the IMF to end the dollar's reign as the world's reserve currency. Their request has been gaining steam globally. Folks, if you are not paying down debt, saving money, and  investing in something  tangible you are going to be in a world of hurt in the next 5-10 years.
Jul 1, 2014 5:26PM
"The Great Disconnect"???
That would be the politicians and the media and the reality that the rest of us have to live.
Jul 1, 2014 10:44PM

Some Americans are doing fairly well, maybe because:

They work...

They work at a better job.

They have saved or invested for retirement.

They have went out and applied themselves to get ahead.

They have strived to get ahead for themselves and families, to live a better life.

When retiring, if they have a pension, 401K, IRAs or other savings and investments, along with Social Security, Healthcare and or Medicare; You can live a pretty good life in America...

It takes hard work and planning ahead for your future....That's all.

Jul 1, 2014 7:28PM
july 2014
"NBA union wants players to prepare for work stoppage"


The wealthy elite are totally out of touch with reality.

Jul 2, 2014 12:20AM
we elected NoBama cause he was black and gave good speeches full of Hope and Change. He acted like he was poor.We ripped Romney cause he was rich and told the truth about the 47% who are lazy azz leeches. Romney still rich cuase he's a slef made millionaire and now NoBama is rich and screwing up the country. The health care plan is the worst I've ever seen. illegal immigrants coming through in droves and he wants to give them amnesty (illegal!!!!). In debt the worst we've ever been. this is his dime and Bush is gone. How's that Hope and Change doing for you? lucky if you have any change in your pocket.
Jul 2, 2014 3:42AM
2% a year increase??!! They must have meant my wages, since I'm surrounded by rising prices! 2% doesn't even come close to measuring the rising cost of food, insurance, utility bills, and the everyday stuff I must purchase. My state just reported a nearly $700 million shortfall in sales taxes revenues over consumer spending continuing to drop, evidently I'm not the only person cutting my spending over stagnant wages and rising prices! With interest rates so low, for so long, I also have moved to cash. 
Welfare, "Disability", as long as it takes unemployment..These are what's bankrupting us, but anyone pointing this out has no heart? Whatever. Reality is reality. America has lost its work ethic. Just give up and the country (The Prez) will take care of you. How can working familys combat this when our stagnant wages have to pay more for food, gas, insurance, etc? Voting is not working. More than half the country thought this was good in 2012. You desrve the governemnt you elect.
Jul 1, 2014 6:19PM
This is obamas recovery.  Remember his fat cat wall st guys are getting rich while main st suffers.  Obama works for wall st bankers

Jul 2, 2014 6:32AM

Once again the Obama Administration is trampling on the First Amendment...  Threatening to arrest any doctors that tell the public of the threat posed by illegal immigrants that have come across the border with dangerous, contagious diseases. 

So much for transparency.  Why should they be threatening doctors for exercising their free speech?

Jul 1, 2014 7:01PM
The Stock Market is so rigged, it's pathetic.  Of course people are still poor....the Fed is also just propping up everything.  After reading Michael Lewis's book Flash Boys, I now understand how he came to that conclusion.  Wall Street just doesn't want people to know it, or what  they are up to.  The next crash could come at any time. Learning about 'inflation" is extremely important for those who don't understand. And, millions of people already know that  the WH also controls so much of the Market's demise.  Time is not on America's side.  Just wait and see.
Jul 1, 2014 6:48PM

Fed money printing is NOT the problem, its CEO's and board members stealing billions and letting the workers' pay stagnate.  When the ultra-rich take their money out of the country, the result is less money in our economy.  lack of cash in America is what lit the fuse of the Bush recession.

Why do the ultra rich pay lower taxes than anyone else?  Why are capital gains not considered "earnings" for tax purposes.

The answer is that rich people have Congress in their pocket, and they never stop offering political donations (aka "bribes") to congress to get better loopholes.

As long as people let the divisive partisan rhetoric drive their votes, the rich will continue to abuse the rest of us.

Jul 1, 2014 5:20PM

It's programs like Social Security that keep us poor.  Invest 15% of your earnings at zero interest for 45+ years.  What a good deal, right?  High Taxes keep us poor.  And allow the democrats to buy the votes of the parasitic 47% that pay no taxes.

We are POOR because of government.  The people that work and earn a living should be doing well, but so much of our earnings are confiscated to support the leech classes.

This November bring about real change, and fire ever democrat on the ballot.  Send them all to the unemployment office.  Only then can we end the government plantation mentality.

Jul 2, 2014 7:25AM


Here's another reason your poor...  The imbecile Obama wants to raise the gasoline tax 12 cents a gallon, so that he can fund more non-road and non-bridge projects.  When asked why the gasoline tax was funding operating costs of public transportation the Obama administration evaded the question. 

How about you CUT spending somewhere else to support your pet projects.  Taking money out of the productive private sector to fund projects the people don't want is not a good idea.   If you want to spend more money we don't have on roads, etc, how about reducing Food Stamps a like amount? 

Sorry, but let those that EARN their money working, keep some of it.   The House is 100% correct to reject this tax increase.  On constitutional grounds alone, it should be rejected.  Revenue bills must start in the house.   There is no way the house should support any tax increases.   If you want to increase spending somewhere, CUT IT SOMEWHERE ELSE!

Jul 2, 2014 8:19AM
i still stand by The Fed's dumbest statement ever made.....except Harry Reid's infamous....They got it wrong comment about the Supreme Courts 9-0 vote......There are absolutely no signs of Inflation....Really, when was the last time that Lap Dog Bernanke with just a higher voice been to the supermarket and actually shopped.......She needs to go.......6 years of low interest rates, printing money around the clock, running up massive debt that we probably have no intention of every paying back has got consequences.......I say the entire working and middle class and anyone who pays federal income taxes should all revolt and stop paying taxes........If the Government has no intention of paying back our debt.....then why do they need my tax dollar ?????   What's the IRS gonna do then.....they can't even stop people with 6th grade educations stealing millions in fraudulent tax return schemes......for Christ's sake....we have gangs and prisoners actual in prison that are stealing millions from the IRS......Our solution....just keep on printing money......that fixes it........ Time to get all the Lawyers out of Congress and get some actual business people in there that know how things work and get this country back on the right track.......
Jul 2, 2014 9:16AM
Can remember back when oblamo said it was the people on Main Street he was going to take care of.. Guess what...He LIED..
Jul 1, 2014 4:57PM
"The bottom line: We’re still suffering a crisis in confidence -- literally"

No, what we are suffering from is an Reality crisis.

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Jul 2, 2014 12:07AM
The Consumer Confidence Index is based on consumers answering questions about something, the economy, that most don't have a clue about how it works or why it's not working.  Nobody should ever make an investment decision on what consumers say about anything.
Jul 1, 2014 5:40PM
that's nothing compared to why i'm still poor despite working till 70 yrs now but still poor as in money needy for inflations and debt and bills.
Jul 2, 2014 6:53AM
The only reason the stock market is worth "more" is because of inflation to those stock shares. Yet,we are told there is NO inflation,even as the price of everything,including stocks,go up up up! Wake up sheeple... we are being lied to and led to slaughter..  STOP FEEDING THE MONSTER.
Jul 1, 2014 8:31PM
That is why I bought a ton of stock in 2009, and handsomely rewarded.  Let's just hope it holds and doesn't completely tank in the next recession.
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