Yes, There Really is a “New Normal”

Some points that seem to show that the U.S. is really in a “new normal,” as least as far as consumer spending goes:

– For a while, we had an interesting phenomenon in this country, one which served this industry very well: People who weren’t rich, but acted like they were.

They were called the “mass affluent.” While definitions vary, they are commonly thought of as people in the $100,000 to $199,000 household income level who tended to spend a little bit more than they could afford. At Monday’s Rapaport conference, Pam Danziger labeled them the HENRYs: High-earners, not rich yet.

It’s the disappearance of this wanna-be sector that has hurt the industry so much. In fact, one study notes, they now refer to themselves as “middle class.” As a researcher found:

“When we asked people to self-identify, those with incomes under $200,000 were most likely to say they were ‘middle class,’ and people over $200,000 were most likely to say ‘upper middle class,'” he adds. “Nobody in America is going to call themselves rich. It is just not culturally acceptable.” 

– Speaking of the middle class, that group has been hurt particularly hard from the last four years of turmoil. As Danziger said at the Rap conference: “The middle class has come out of this recession in a much worse place. People are saying there isn’t even a middle class anymore.”

 This theme was picked up by an article in today’s Wall Street Journal, which noted that Proctor and Gamble, which built its business on the middle class, now considers the middle a shrinking market:

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 …

“Companies have thought that if you’re in the middle, you’re safe,” says Citigroup analyst Deborah Weinswig. “But that’s not where the consumer is any more—the consumer hourglass is more pronounced now than ever.”

The article notes that P&G executives closely monitor the Gini coefficient, an influential monitor of income equality, and found something surprising:

“[The U.S now has] 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.”

– Which is why so many marketers are aiming at affluent consumers. And while the luxury sector is currently considered one of the best performing parts of our economy, even some of the very rich have had a change of heart. I recently interviewed the people behind Harrison Group/American Express Survey of Affluence and Wealth in America. Here is one particularly interesting quote from Harrison Group vice president Jim Taylor: 

Before the recession, about half of the affluent in our sample said they were happy. That has risen to 70 percent. People are looking within themselves and finding they have done a real good job of surviving. They have become more focused on themselves and their family and less focused on consumption. That’s why I don’t believe consumption will come back the way economists want it to. Things really have changed.

Telling words—and a reminder that, even if the economy gets better (and it doesn’t look like it is), we won’t necessarily be dealing with the same customer we had in 2006. 

JCK News Director