Last updated: August 24, 2012 11:41 pm

Middle America – smaller and poorer

Investors would have been wise to ignore the demographics and bet the internet

The middle-class in America is smaller and poorer than it was a decade ago. And yeah, since you asked, it is feeling pretty grouchy about things.

Such are the conclusions of a report published this week by the Pew Research Center. Incomes at the middle of the middle (that is, median income for households who earn between two-thirds and double the national median) fell 5 per cent over the past 10 years. Median net worth dropped 28 per cent, hit by home prices. The upper income tier now accounts for more of aggregate household income than the middle. Membership of the middle class has shrunk as the lower and upper classes have grown. And the overwhelming majority of middle class people surveyed think it is harder now than 10 years ago to maintain their standard of living.

The idea that investors in consumer stocks should have a sort of barbell strategy – focusing on companies that cater to the ever-richer rich or provide great value per dollar to stretched working people – is wearyingly familiar. Looking at consumer stocks provides, at best, patchy confirmation for it, however.

The list of best-performing big cap retailer stocks over the past 10 years does include a conspicuous number of companies who cater to the affluent. Whole Foods, United Natural Foods and Coach have returned 350, 500 and 800 per cent, respectively – well ahead of, say, middle-class Target. But there are far fewer success stories at the hard discount end of the spectrum (the dollar stores are one). Anyway, investors would have been wise to ignore the demographics and bet the internet: the two best-performing large retailers of the last 10 years are Priceline and Amazon.

As election season peaks, speeches about the changing class structure will proliferate. It is an easier theme to campaign on than invest in.

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