Retail is suffering because the middle classes have lost $1,355 trillion in income since 1970

(written by lawrence krubner, however indented passages are often quotes). You can contact lawrence at:, or follow me on Twitter.

Nowadays, there are a lot of articles being written about the collapse of retail in the USA. Some people blame Amazon and online shopping, but that is only a trivial part of the problem.

$1,355,610,000,000 of consumer spending is missing from the demand side of USA spending, and that should be kept in mind whenever you read an article about retail going through hell. The big boom in retail in the mid-20th century was thanks a strong middle class. Conversely, the collapse of income of the middle quintiles of income must lead to a contraction of retail. Consider these charts:

Table H-2. Share of Aggregate Income Received by Each Fifth and Top 5 Percent of Households

Percent of income for the 3 middle quintiles in 1970:




total: 52.7%

In 2016:




total: 45.4%

The difference: 7.3%

The GDP of the USA in 2016:

18.57 trillion

So if the middle classes still had the same share of national income as they had in 1970, they would have an additional $1,355,610,000,000 to spend or save.

Retail spending in the USA in 2016 was around $5 trillion:

Hold the spend/save ratio constant and we can say that retail spending would be 27% higher in 2016, if the middle quintiles still had the same percentage of national income as they had in 1970.

You can make some adjustments for the increased spending in the top quintile, but most of the income has gone to the top 1% and most of that goes to savings rather than spending.

Obviously, all of our current stories about retail would be different if the middle classes still had the same percentage of national income that they had in 1970.

And please, please, please note, Amazon only had $131 billion in sales during 2016. It’s impact is very small compared to that missing $1,355 trillion.

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