Troubling Trends

The Census Bureau just published new data revealing trends in living standards as of 2010.  The trends are troubling to say the least.   

Median household income (adjusted for inflation) fell to $49,445 (see below).  That means that the median household now earns less than it did a decade ago.  This marks the first decade since the Great Depression without an increase in real median income.  According to Lawrence Katz, a labor expert and Harvard economist,  

“This is truly a lost decade.  We think of America as a place where every generation is dong better, but we’re looking at a period when the median family is in worse shape than it was in the late 1990s.”

The percentage of Americans living in poverty hit 15.1 percent, the highest percentage since 1993 (see below).  There are now 46.2 million people living below the poverty line, the greatest number ever recorded by the Census Bureau. Child poverty stood at 22 percent.   


Things are unlikely to get better this year.  State and local governments are slashing employment and programs and the federal government is now moving into cutting mode itself.   

This depressing situation is not simply a recession phenomenon.  As the New York Times reports, the expansion period of 2001 to 2007 “was the first . . . on record where the level of poverty was deeper, and median income of working-age people was lower, at the end than at the beginning.”   

Of course, while the great majority of people are struggling, a small minority have been doing very well.  One consequence, as the chart below highlights, is a strong growth in inequality (as measured by the Gini coefficient with higher numbers reflecting greater inequality).  As I noted in a previous post, over the years 2002 to 2007, the top 1 percent of households captured 58 percent of all the income generated.  


So, in brief, there is a small minority that is doing very well and a great majority that is struggling, with a significant number in free fall.  Corporations understand what is happening and they are responding.  In brief, they are letting go of the middle class as a market and restructuring their offerings to appeal to the top and bottom of the income distribution. 

Here is an enlightening five minute discussion of this new business strategy on Daily Ticker video.    

The Wall Street Journal, highlighting Procter & Gamble, also reports on this development:

For the first time in 38 years . . . the company launched a new dish soap in the U.S. at a bargain price.

P&G’s roll out of Gain dish soap says a lot about the health of the American middle class: The world’s largest maker of consumer products is now betting that the squeeze on middle America will be long lasting. . . .

P&G isn’t the only company adjusting its business.  A wide swath of American companies is convinced that the consumer market is bifurcating into high and low ends and eroding in the middle.  They have begun to alter the way they research, develop and market their products. . . .

To monitor the evolving American consumer market, P&G executives study the Gini index, a widely accepted measure of income inequality that ranges from zero, when everyone earns the same amount, to one, when all income goes to only one person. In 2009, the most recent calculation available, the Gini coefficient totaled 0.468, a 20% rise in income disparity over the past 40 years, according to the U.S. Census Bureau.

“We now have a Gini index similar to the Philippines and Mexico—you’d never have imagined that,” says Phyllis Jackson, P&G’s vice president of consumer market knowledge for North America. “I don’t think we’ve typically thought about America as a country with big income gaps to this extent.”

Such a response may well strengthen corporate bottom lines, at least for a while.  Unfortunately for the great majority of us, it may also reinforce existing downward trends in income.

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