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The New York Times had an insightful story yesterday about how our steadily growing inequality is well-known to the business community.

Headlined "The Middle Class Is Steadily Eroding. Just Ask the Business World.", Nelson Schwartz' story can be summed up in this sentence:

Since 2009, the year the recession ended, inflation-adjusted spending by this top echelon (the 5 percent highest income types) has risen 17 percent, compared with just 1 percent among the bottom 95 percent.
That may be good for Maserati sales, but is generally very bad for businesses who depend on a mass consumer market of people who can afford spending beyond the basic necessities.

More, below.

The NYT story briefly surveys several parts of the economy -- appliances, restaurants, casinos (!), and clothing retailers -- and finds that marketing to the middle class is a losing proposition because there's no vast middle class left.

Here's a taste of that:

A shift at Darden, which calls itself the world’s largest full-service restaurant owner, encapsulates the trend. Foot traffic at midtier, casual dining properties like Red Lobster and Olive Garden has dropped in every quarter but one since 2005, according to John Glass, a restaurant industry analyst at Morgan Stanley.

With diners paying an average tab of $16.50 a person at Olive Garden, Mr. Glass said, “The customers are middle class. They’re not rich. They’re not poor.” With income growth stagnant and prices for necessities like health care and education on the rise, he said, “They are cutting back.”

On the other hand, at the Capital Grille, an upscale Darden chain where the average check per person is about $71, spending is up by an average of 5 percent annually over the last three years.

Over at GE, sales of high-end refrigerators that dispense hot water are hot:
At G.E. Appliances, for example, the fastest-growing brand is the Café line, which is aimed at the top quarter of the market, with refrigerators typically retailing for $1,700 to $3,000.

“This is a person who is willing to pay for features, like a double-oven range or a refrigerator with hot water,” said Brian McWaters, a general manager in G.E.'s Appliance division.

And gambling palaces that cater to the 5 percent are doing quite well:
Luxury gambling properties like Wynn and the Venetian in Las Vegas are booming, drawing in more high rollers than regional casinos in Atlantic City, upstate New York and Connecticut, which attract a less affluent clientele who are not betting as much, said Steven Kent, an analyst at Goldman Sachs.

Among hotels, revenue per room in the high-end category, which includes brands like the Four Seasons and St. Regis, grew 7.5 percent in 2013, compared with a 4.1 percent gain for midscale properties like Best Western, according to Smith Travel Research.

The NYT story is generally written from a Wall Street perspective, but includes this cautionary note from an academic:
While spending among the most affluent consumers has managed to propel the economy forward, the sharpening divide is worrying, (Stephen) Fazzari (of Washington University) said.

“It’s going to be hard to maintain strong economic growth with such a large proportion of the population falling behind,” he said. “We might be able to muddle along — but can we really recover?”

Charlie Pierce noticed this story, and commented in his inimitable way:
American "business," a concept that runs from your local pharmacist to Goldman Sachs, which then steals it all and runs away, pronounces itself startled that, having worked diligently at its highest levels to burn the entire house down, it is now difficult to see the TV clearly through all the smoke.


Suddenly, lo and behold, the blog's First Law Of Economics -- Fk The Deficit. People Got No Jobs. People Got No Money -- kicks in and, unless, you're selling yachts, business goes sour because ... wait for it ... nobody can afford to buy anything!


A Pew Research poll released last week underscores the inequality/slack consumer spending problem with this startling finding:
The proportion of Americans who identify with the middle class has never been lower, dropping  to 44% from 53% in 2008 during the first months of the Great Recession, according to a survey conducted Jan. 15-19. The share of the public who says they are in the lower or lower-middle classes rose by 15 percentage points, from 25% in 2008 to 40% today.
Disaster capitalism and cheap labor policies of Republicans and their corporate masters have more than decimated the American middle class and threaten to turn our country into a banana republic, without the bananas.

Opposing all that is THE populist issue of our time, and the Democrats must recognize that and do something about it.  



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Comment Preferences

  •  Tip Jar (7+ / 0-)

    A public option for health insurance is a national priority.

    by devtob on Mon Feb 03, 2014 at 06:57:12 PM PST

  •  Wrong. Incomes Are Not Stagnant, They're Falling (4+ / 0-)
    Recommended by:
    devtob, greengemini, kurt, Eric Hopp

    for the bottom 80% to 90% if I'm recalling some recent reports correctly.

    "Middle Class" used to refer not to average Americans but to professionals, business owners, upper management, bureaucrats. The relatively few people who had to work but had upward mobility, higher education, and a secure old age.

    The New Deal brought the middle class lifestyle to the masses and Reaganomics took it back away. The 80% are now Working Class not middle class.

    And obviously there's no point in business investing in a deflating market.

    We are called to speak for the weak, for the voiceless, for victims of our nation and for those it calls enemy.... --ML King "Beyond Vietnam"

    by Gooserock on Mon Feb 03, 2014 at 07:30:11 PM PST

  •  It's to be hoped that some smart small business (1+ / 0-)
    Recommended by:

    owners recognize that they have a much better chance of survival with 100 small customers than 2 or 3 high maintenance large ones.  For some small businesses, that fact was a fundamental for survival in the old days.  It still is in some non retail businesses.  Retail?...that' one's a bitch.

    Newt 2012. Sociopath, adulterer, hypocrite, Republican.

    by tikkun on Mon Feb 03, 2014 at 07:45:12 PM PST

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