Consumer Trends Indicate Middle Class is Steadily Eroding

Monday, 03 Feb 2014 11:32 AM

By Melanie Batley

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Politicians continue to debate whether the middle class is shrinking and income inequality is increasing, but in corporate America it's a foregone conclusion.

According to The New York Times, consumer indicators across a wide range of industries suggest that businesses targeted at the middle classes are faltering, while both high-end and low-end retailers are thriving.

"As a retailer or restaurant chain, if you're not at the really high level or the low level, that's a tough place to be," John Maxwell, head of the global retail and consumer practice at PricewaterhouseCoopers, told the Times. "You don't want to be stuck in the middle."

Researchers have found that in 2012, the top five percent of earners were responsible for 38 percent of domestic consumption, compared to 28 percent in 1995.

Indicators also suggest that the economic recovery appears to be driven almost entirely by the upper classes. One study, for example, found that 90 percent of the overall increase in inflation-adjusted consumption between 2009 and 2012 was generated by the top 20 percent of households in terms of income, the Times reports.

The trends hold true across a number of different sectors including restaurants, retailers, hotels, casinos and appliance makers.

Economists say, however, that the increasing divide could undermine the nation's long-term economic health and create more volatility in the markets since discretionary spending among the affluent tends to fluctuate in line with the ups and downs of the market.

"It's going to be hard to maintain strong economic growth with such a large proportion of the population falling behind," Steven Fazzari, an economist at Washington University in St. Louis, told the Times. "We might be able to muddle along — but can we really recover?"

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