Middle-class Many Americans are still having a hard time with high prices after the pandemic. In 2025, they may have to deal with even more inflation and a tight job market, which will put even more stress on a group that is already struggling financially.
Because wealthy Americans spent money to get back at people who hurt them, the U.S. economy grew by at least 2.5% this year and avoided a recession. But things could get worse next year for people with low to middle incomes because the job market is showing signs of weakening and some experts say President-elect Trump’s plans will raise prices and slow down economic growth.
Earlier this year, J.P. Morgan analyst Matthew Boss used slang to say that low- to middle-income customers are in a “selective recession.” This means that they are having a hard time with money because prices are going up, which is eating away at their savings. The National Bureau of Economic Research says that a recession is a “significant decline in economic activity” that lasts for more than a few months. The boss wasn’t available for a chat.
Prof. Brett House of Columbia Business School told MarketWatch, “There are many people in the middle class who are not in their ideal situations.” However, House did not say that the middle class was in a recession. Instead, he said that the rise in interest rates and the cost of living over the last few years “has not fallen on people in an equitable or equal way.”
House also said that Trump’s main policy ideas “would be unlikely to make middle-class Americans better off.” He said that things like tariffs, fewer immigrants, and mass deportations would “unquestionably drive up costs” for businesses and “raise the prices that Americans pay for basic goods.”
A study by the Pew Research Centre found that the percentage of Americans living in middle-income households and the amount of their overall income had been going down for decades before the pandemic. A think tank on the left called the Economic Policy Institute found that between 2019 and 2023, wage growth was slowest for middle-income families during the pandemic recovery.
In a study for 2025, J.P. Morgan analysts said that by 2024, consumption was “dominated by high-income households, which have enjoyed enormous gains in household wealth, along with strong interest, dividend, and property income.” Since then, other customers have been more careful.
Kayla Bruun, lead economist at the polling company Morning Consult, told MarketWatch that in the past, the mood of middle-income Americans has been similar to that of high-income Americans. But when prices went up in 2021, the difference in wealth between people with high incomes and everyone else began to grow. For a while, middle-income shoppers could handle higher prices. But “starting in late 2023 and the first half of this year, the middle-income group really started to deteriorate and behave more like lower-income shoppers,” she said.
A report from Morning Consult on middle-income customers said, “The economy since the pandemic has made the rich richer and the not rich more pessimistic.”
People’s credit scores have begun to reflect this stress over money. For credit cards (7.1% in the third quarter, up from 3.69% in the same quarter of 2022) and auto loans (2.9% in the third quarter, up from 2.02% in the same quarter of 2022), the rate of balances going into major delinquency has been going up. Citi’s 2025 U.S. economic outlook says that people who don’t have a lot of money “are having a harder time” because the personal savings rate was low (4.4% in October compared to an average of 6.37% from 2015 to 2019) and hiring was slow.
Trends in unemployment
Americans had to deal with quickly rising prices for everyday items, housing, child care, and health care during the pandemic. However, “the fact that unemployment has been low and layoffs have been low is huge” for low- and middle-income households, Bruun said, because they often don’t have as much of a safety net as high-income households, who can rely more on their assets when times get tough.
Now, there are signs that the job market is weakening. For example, the number of people who have been unemployed for at least six months has gone up, and unemployment rose to 4.2% last month.
Citi’s economics team said in a prediction for 2025 that there will be “a sharper rise in the unemployment rate as firms looking to save on labour costs shift from hiring fewer people to laying them off completely.” It also said that the drop in jobs could slow income growth, making it harder for working people to spend money.
House said, “We’re not doing as good a job as we could be at retraining workers, reskilling workers, and keeping the level of labour market mobility that has been a great feature of the U.S. economy for many decades.”
There is a lot of competition among workers for new jobs that pay more, and the hiring process is often slow and boring. In Milwaukee, Joel Lalgee started and leads the Realest Recruiter. He said that he has never seen job seekers have as much trouble as they are now in the last ten years. Recruiters he knows say that for every 100 jobs people apply for, only one to three send back an offer. It also takes a lot of people three to six months to get an offer.
The Bureau of Labour Statistics says that the average length of unemployed rose from 19.5 weeks in November 2023 to 23.7 weeks in November 2024. Indeed told MarketWatch in the past that over the last two years there has been a general trend towards “rapidly declining postings in knowledge-worker roles,” and wages for these roles have also grown slowly.
According to Lalgee, there is a real chance that we will soon be in a slump for white-collar jobs. “Being more efficient has been a big goal for many businesses since the middle of 2022. This is true in all areas, from customer service to sales to hiring.
Lalgee thinks that companies will continue to focus on being efficient in 2025, but he also added, “Hopefully we’ll start to see some more investment in companies, which will create jobs.”
Karin Kimbrough, Chief Economist at LinkedIn, recently wrote that hiring will pick up in 2025 in fields like healthcare, energy, utilities, defence, and energy. However, she said that the picture “could be more challenged” in areas like construction, professional services, retail, and government. She wrote that next year, “competition for jobs will remain high.”
What inflation means for middle-income families
The general amount of money people spend in the U.S. has been going up, according to Fitch Ratings. For example, only households making more than $200,000 were able to eat out as much in 2023 as they did in 2019. According to figures from Circana, 44% of travellers this year were earning at least $100,000, up from 35% in 2023.
Even though Americans in the middle class have made it by with some sacrifices, Bruun was worried that the annual rate of inflation rose back up to 2.7% in November after dropping to 2.4% in September. This week, the Federal Reserve said it doesn’t think inflation will drop to its goal level of 2% until 2027.
For more than a year, wages have been going up faster than prices. However, Bruun said that many middle-income customers “still haven’t really recovered” from the last rate hike in prices. In fact, economists at Bankrate don’t think pay will fully catch up to rising prices until the second quarter of 2025.
59% of workers surveyed by Bankrate in October, including 50% who got a rise, said that their income had not kept up with increases in their household costs over the past year. This was almost the same number as the previous year. People who made less than $100,000 were more likely than those who made more to say that their pay hadn’t kept up with inflation. People who answered a different Bankrate survey last month said that they don’t think their finances will get better next year because of continued high prices.
According to a recent report on the U.S. economy by Morning Consult, if inflation stays high, the Federal Reserve may not be able to lower interest rates as much in 2025. This could “weigh on businesses’ hiring decisions” and undo any recent improvements in consumer health.
The report by analysts said, “With weaker household finances heading into 2025, many households may not be able to weather a resurgence in inflation or persistently high interest rates.”
