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Middle class comeback? Not without higher wages

Joe Belfiglio

Is America's middle class on the comeback trail? Low gas prices, a stronger dollar and more jobs are all helping middle class earners make strides but there's still work to be done.

In a Wall Street Journal opinion pieceMorgan Stanley’s (MS) Ruchir Sharma writes that consumer confidence is up, people are forming more households, and a shift from high-end to low-end buying of goods all point to a middle class resurgence. He cites Morgan Stanley’s "What Consumers Want" research that tracks consumer item sales growth. In 2013, the item with the fastest sales growth was private jets. Last year, it was used cars and trucks. So it’s not just the rich that are spending.

Yahoo Finance’s Henry Blodget says a stronger middle class is crucial to economic growth. “The middle class is what buys the most stuff day in and day out. If we are trying to get our economy accelerating again you’ve got to give customers money and ultimately customers are the people who work for a living.”

Low gas prices have armed middle income Americans with more cash to spend. Americans saved $24.4 billion since gas prices started falling, according to data from Bespoke Investment Group. Yahoo Finance contributor John D. Markman broke down the gas savings. He says consumer confidence soars when gas prices drop. Americans are spending their billions in gas savings on cars, food, and non-store retailers including online shopping.

Wage growth is another area that is slowly ticking up. Average hourly earnings were up 2.2% in 2014 according to the Labor Department but that’s still below the Fed’s target for healthy growth. Blodget says some companies are starting to pay their employees better. “It is wonderful to finally see some companies like Aetna (AET) and Apple (AAPL) pay their lower paid employees more voluntarily so they don’t have to be poor while working full time for the company.”

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Blodget thinks the economy needs more employers to give their middle class workers a raise. Companies who don’t pass on their profits end up hurting the middle class workers they employ. “Some of our best and most profitable companies like Walmart (WMT) and McDonald's (MCD) - you have people who work full-time for the company, dedicating their lives to it. And they are poor,” says Blodget.

Blodget says if companies pass down profits to their employees, the middle class will thrive. “We are trying to scrimp down to as little as possible as opposed to just sharing, and you say that word and people are like, 'You’re obviously a socialist.' It’s a bunch of crap. It has nothing to do with government. It is sharing the wealth your company creates with the people who create it. That is what will bring the middle class roaring back”

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