In recession, poverty strikes middle class

WASHINGTON (Reuters) - Chaun Frost ran up her credit cards when the U.S. economy was booming, and now the single mother is paying a heavy price.

A homeless man sits on a bench with a cup of chili that he received from the Salvation Army's "Gate Patrol" in Washington, December 9, 2008. The Patrol runs every night providing food and clothing in the city for up to 200 homeless people and the working poor. Picture taken December 9, 2008. To match feature USA-ECONOMY/POVERTY REUTERS/Jim Young

To service her debt and buy food for her two children, she has taken a second job selling pizza on weekends and some week nights, supplementing the $2,200 a month she earns from her job coordinating volunteers at a children’s hospital.

“We have been hurt by the current state that the economy is in,” said Frost, 32. “I am part of the new working poor.”

About 37.3 million Americans were living in poverty in 2007, or about 12.5 percent of the population, according to the government, which defines poverty as an annual income of $21,203 or less for a family of four.

Figures due out in August will show that rose by about half a percentage point last year, analysts estimate, and more and more people like Frost will slip into poverty this year as the recession takes hold.

In many ways, Frost is typical of the many middle class people in the current recession who are falling into poverty.

Many of the decisions she made seemed smart at the time. Some of her many debts were accumulated as student loans. She also makes monthly payments for a big car whose value is now less than the amount she owes on it.

Repayments on the car and insurance bills are almost as much as the $850 rent for the modestly furnished two-bedroom apartment she shares with her 11-year-old son and a 9-year-old daughter in Washington.

In a move she knows could spell trouble for the future, she has slashed her retirement contributions to $5 per check from $100, partly in response to a drop in the stock market.

And, underneath it all is the economic downturn, which has exacerbated her problems and shattered her financial self-confidence.

“Had I known that things would turn out this bad, I would have done things differently,” Frost said.

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The worst financial crisis since the Great Depression of the 1930s, ignited by the collapse of the U.S. housing market, has sent the U.S. economy into a downward spiral.

Government data shows the unemployment rate jumped to 7.2 percent in December, the highest in nearly 16 years, as companies cut jobs to cope with a shrinking economy.

“My guess is poverty is going to go up from around 12.5 percent now by about half percentage point to 13 percent,” said Rebecca Blank, a senior fellow at the Brookings Institution in Washington. “The main driving factor is rising unemployment.”

Among those out of work is Shirley, 55, who has been living off a $195 weekly unemployment check since September.

“I never remember things being this bad,” she said. She declined to give her last name because she is in a legal battle with a bank over disconnected electricity at the apartment building in Washington where she lives.

“This is the longest I have been unemployed,” she said.

With the economy not expected to recover before the second half of 2009 and the jobless rate forecast to top 9 percent by the end of the year, analysts said the number of people living in poverty is set to increase.

“How many more people fall into poverty as this recession continues depends on what policy choices are made,” said Lisa Donner, Executive Director of the Half in Ten Campaign, an organization focusing on poverty in the U.S. capital.


The Center on Budget and Policy Priorities, a private think tank, estimates that if unemployment reaches 9 percent, 7.5 to 10.3 million more people could fall below the federal poverty line.

The Congressional Budget Office has estimated that government spending on food stamps will rise to $50 billion this year from $39 billion in 2008, another sign that more Americans are struggling.

Around the country, charity groups have reported an increase in the number of people using their services.

“We have seen an increase of about 10 to 20 percent in people seeking help with groceries. They are from all racial groups, and about four fifths of them earn incomes below the federal poverty line,” said food coordinator Jenette Chance of Bread for the City in Washington.

Some experts criticize government poverty measures, arguing that the methodology was developed in the mid-1960s and has had no major revisions, except to make adjustments for inflation.

Instead, they propose a poverty measure that takes into account variables such as taxes paid and credits received, medical expenses and work-related expenses.

“The official measure very much understates the number of people or households having a very tough time,” said Ann Chih Lin a public policy and political science professor at the University of Michigan.

The collapse of the U.S. housing market means many middle class people are either living in poverty or are one pay check away from hard times, she said.

“Recessions normally hit the people who are the poorest harder, but this clearly is a middle class recession because of the credit and foreclosure crisis,” said Lin.

President-elect Barack Obama is pushing for the swift passage of a spending package to promote economic recovery.

For Frost, anything would be better than the status quo.

“I guess we all are looking for miracles and some good leadership for the good of the economy,” she said. “When you look at who is in the unemployment benefits line, the food line, it’s a lot of people who were middle class.”

Reporting by Lucia Mutikani; Editing by Eddie Evans