You know the economy is in a bind when consumers stop spending. But consumer retrenchment can ultimately be a good thing if it allows indebted households to rebuild their wealth. Unfortunately, that’s not how things are playing out for this country’s middle class. The personal savings rate has jumped from near-zero in years past to more than 5% in recent months. And yet, the share of middle class wealth is shrinking, while middle class incomes are falling.
If consumer marketing is any judge, the middle class crunch is here to stay. Big consumer companies like Proctor & Gamble, which used to gear their products around a growing middle class, have shifted to selling high and selling low while cutting out the middle, the Wall Street Journal reports, because, in their words, “that’s where the growth is.” Here’s WSJ‘s gloomy reading on the squeezed middle:
In the wake of the worst recession in 50 years, there’s little doubt that the American middle class—the 40% of households with annual incomes between $50,000 and $140,000 a year—is in distress. Even before the recession, incomes of American middle-class families weren’t keeping up with inflation, especially with the rising costs of what are considered the essential ingredients of middle-class life—college education, health care and housing. In 2009, the income of the median family, the one smack in the middle of the middle, was lower, adjusted for inflation, than in 1998, the Census Bureau says.
Consumer brands aren’t the only ones rolling out products to keep up with the dwindling middle class. Investment advisers like Citigroup have been advising their clients to buy into this trend. In 2009, Citigroup created a nifty index to track the middle class’s demise, the WSJ notes. The “consumer hourglass index,” as Citigroup calls it, consists of 25 companies that target the high and low, like Estee Lauder and Saks on the one end and the Family Dollar stores on the other.
Of course, buying into the trend means bigger profits for the firms, their shareholders, and their clients. But are these companies also part of the problem? The Columbia Journalism Review‘s Ryan Chittam notes that, according to a recent Washington Post story, just 28 percent of P&G’s workers are in the U.S, while the rest come from abroad. And yet P&G is one of many big corporations seeking tax breaks to boost hiring as part of Obama’s jobs plan. The issue is so sensitive that many firms have stopped reporting the whereabouts of their workers altogether. IBM, for instance, stopped breaking down worker location right about when the number of its workers in India surpassed the number in the U.S, according to WaPo.
It’s worth remembering that the bulk of P&G’s profits still come back to the U.S. And those profits feed into the bigger salaries of higher-skilled U.S. workers, such as engineers and corporate managers, whose spending boosts our economy. The question is whether companies have any incentive to create lower-tier jobs for middle class workers. I’ve argued that companies could start to feel the pinch (and the need to start hiring) once the drop-off in middle class spending starts cutting into profits. But if companies can make up the difference by marketing further up and downstream, then the fate of the middle class becomes a mere side show.
Drawing more attention to these firms’ dwindling U.S. employment figures could help the middle class cause. The bulk of sales for companies like P&G, after all, still comes from the U.S., where middle-class consumers have long valued the familiarity and coziness of American household names. Companies reliant on all-American branding may start to lose their luster if consumers start resenting what they perceive to be un-American businesses. No wonder so many U.S. companies are trying hard to keep those numbers under wraps.