A recent Wall Street Journal article on how US corporations are adjusting to a shrinking middle class, Ellen Byron writes:

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.

The slumping stock market and collapse in housing prices have also hit middle-class Americans. At the end of March, Americans had $6.1 trillion in equity in their houses—the value of the house minus mortgages—half the 2006 level, according to the Federal Reserve. Economist Edward Wolff of New York University estimates that the net worth—household assets minus debts—of the middle fifth of American households grew by 2.4% a year between 2001 and 2007 and plunged by 26.2% in the following two years.

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.”

Over the past two years, P&G has accelerated its research, product-development and marketing approach to target the newly divided American market.

Commenting on corporate responses to widening US income inequality, Chrystia Freeland  recently remarked in The New York Times:

We know one thing for sure: the gap between rich and poor in the United States has widened in the past 30 years. In 2007 the top 1 percent of earners took home 18.3 percent of national income — that is more than two and a half times their level in 1973, when their share was 7.7 percent. Those at the top haven’t enjoyed such a big slice of the national pie since 1929. The middle-class dominated nation that the Greatest Generation inhabited has become as polarized as the plutocracies of Latin America or as America itself was during its fevered Gilded Age.

The 2008 financial crisis and the prolonged economic downturn has eviscerated the consumption defense as ruthlessly as it has burst the credit bubble that allowed the middle class to feel richer than it was. Income inequality is today a fact of life, as essential to doing business as the rate of inflation: Proctor & Gamble executives study the Gini co-efficient, a technical measure of income inequality, to divine what is happening to their erstwhile middle-class consumer base, and have decided the best strategy is to give up on the center and to market instead to the top and the bottom.

Citigroup advises investors to design their portfolios around income inequality. It calls this strategy the “Consumer Hourglass Portfolio” and has created an index of companies that serve the rich and the poor while avoiding the vanishing middle.

Once income inequality has become a tool for marketing executives and stock pickers it becomes pretty hard to deny. But we can still argue over what is causing it.

Income also continues to dip in Washington state, according to a Sept. 22 Seattle Times article

Household income — in Washington state and across the country — declined in 2010, while the percentage of people living in poverty increased, as did the numbers of people without health insurance, according to data being released Thursday by the Census Bureau.

Results from the American Community Survey, successor to the census long form, detail a troubled economy, showing a downward trend that began in 2008 or earlier has continued or worsened in many larger cities and counties.

Children have been particularly affected. In Washington state last year, 13.4 percent of the overall population, including 18.2 percent of those under 18, were in households with incomes below the national poverty level.

Another sign of tough times for kids: Statewide, more than 47 percent of single mothers with children under 5 were living in poverty.

The percentage of Washington residents without health insurance rose from 13.4 percent to 14.2 percent last year. And the percentage of state households receiving food stamps rose from 11.1 percent in 2009 to 13.3 percent last year.

The survey showed Washington’s median income fell 3.1 percent in 2010 to $55,631, after a 1.8 percent drop the previous year.

Of the 19 Washington counties in the report, King County had the highest median income in 2010, at $66,174. But that was nearly a 4 percent drop from its median income in 2009.

Lewis County, in the southwest part of the state, had the lowest median income of the Washington counties reported, at $38,643 — more than a 10 percent drop from 2009.

Among those same counties, Yakima County had the highest percentage of residents under the poverty level in 2010, 24.3 percent, while Island County had the lowest, 9.4 percent.

via As Middle Class Shrinks, P&G Marketing Aims High and Low – WSJ.com.