One of the most impressive results of Brazil's economic rise has been the explosion of the middle class, and the expansion of what is called the C Class. Beyond the stock market, the oil fields, and the upcoming international events, the new middle class is what really has helped fuel growth and has attracted so much investment and international business.
In Brazil, socioeconomic level are divided by letters: A and B (upper income), C (middle income), D (lower middle income), and E (low income). This week, a new government study from the Strategic Affairs Secretariat (SAE) was released that provide insight into the new middle class, and provides an interesting look at Brazil's biggest consumers. One of the authors of the study discussed the rise of the middle class earlier this year:
The middle class now encompasses 52 percent of the Brazilian population, with around 95 million people. A new middle class family earns between R$1,000 and R$4,000 per month, or US$615 and US$2,461. The average monthly salary for a middle class family is R$2,295, around US$1,412, which amounts to about US$18,356 a year (including the "13th" bonus salary). Most are urban dwellers (89% live in cities) and largely concentrated in Brazil's wealthier regions (the South, Southeast, and Central-West). The majority are adults (63 percent are over 25), and slightly more than half are female and white. Amongst those in the C Class, six out of ten are employed. Plus, the rise of women in the workplace and higher education levels have helped propel families into the C class.
Brazilians from the new middle class are spending record numbers on consumer goods and services, and are expected to spend US$1.5 trillion in 2011. Shopping malls, which have becoming increasingly popular in the last few years, are mushrooming all over the country. This week, BR Malls acquired four new malls, and has plans to expand to Argentina and Chile. Also this week, Australia's Westfield Group purchased a 50 percent stake for US$440 million in Brazil's Almeida Junior Shopping Centers. Companies are opening offices and turning their focus from the U.S. and European markets to Brazil. As this LA Times article explains, companies disappointed with zero growth in the US are expanding to Brazil where opportunities for new investments abound - particularly with middle class consumers.
So what are they buying? Just about everything. According to the study, the new middle class spends around 31.5 percent of their yearly budgets on expenses for the home, which include bills, repairs, and big purchases like TVs and computers. They spend about 23 percent of yearly budgets on services, including beauty salons, housekeepers, and government services. About 18.5 percent is spent on food and drink. A few other interesting numbers: the C Class is responsible for 48 percent of supermarket purchases and 60 percent of beauty salon expenditures; members of the C Class make up 70 percent of Brazilian credit card holders and 80 percent of Brazilians who access the internet. For the new middle class, two of the main aspirations for purchases are cars and homes.
One of the most notable consumption trends in the new middle class is travel - now more than ever, Brazilians are going abroad and are spending billions. As the U.S. Ambassador Thomas Shannon noted at the Council of the Americas conference in São Paulo this week, "Brazilians travel with almost fanatical zeal to the US." In the first six months of 2011, Brazilians spent US$10.18 billion abroad, an all time record and a 44 percent increase from the same period the year before. This June alone, Brazilians spent US$1.8 billion on international travel. Many travelers are coming to the United States, much to the delight of embattled retailers. Miami is a popular shopping destination, and in 2010, 550,000 Brazilians visited the Florida city, spending US$1.14 billion there. Some even come with actual shopping tours. Wealthy Brazilians are buying up Miami real estate; as one broker told The New York Times, “The Brazilians walk in, they don’t even negotiate...It’s a no-brainer for them.”
But with this massive group of new consumers whipped up in a spending frenzy, debt is a real problem, and luckily the government is concerned. Ensuring education about credit and expanding unemployment insurance, amongst other measures, will be key in the sustainability of development, noted an EXAME article this week. Also, The Guardian revealed new consumer debt numbers this week:
"...A current representation of traditional Brazilian financial mismanagement is the high level of indebtedness of its families, which reaches 65% on average in the main cities of the country. In Curitiba, for example, the average level of indebtedness of its families – according to the Brazilian Federation of Commerce – has reached 88%. In Natal, the capital of Rio Grande do Norte, 40% of the family income is, on average, committed to debts. In the last year, 10 Brazilian states...were showing levels of indebtedness of its families beyond 70%. In 2011, at least 15 states are in the same situation."
There are also American-style heath problems - as the middle class has grown, so have Brazilian girths: nearly half the population is overweight, and childhood obesity has more than quadrupled in the past two decades.
Despite gains in salaries and purchasing power, the new middle class still falls behind the upper classes in access to education, services, sanitation and culture. A 2009 study found that while 87 percent of the upper class finished high school, only 59 percent of the middle class completed a high school education. The latest SAE study found that the middle class typically spends less than 30 percent of what the upper class spends per month on leisure and culture. While over 80 percent of wealth households have landline phones, less than 50 percent of middle class homes do. Seventy-two percent of upper class homes have an internet connection, compared to only 30 percent of middle class households. Nearly all wealthy households have adequate sanitation, compared to three quarters of middle class homes.
These challenges will very likely recede over time, assuming real wage growth and low unemployment hold. Brazilian middle class salaries are lower than in developed countries, which would be less of an issue if it were not for inflation, a high cost of living, and extremely high prices in major cities. Aside from reigning in consumer debt, striving to keep prices within a reasonable range of middle class salaries will help sustain this enormous contingent of consumers fueling Brazil's booming economy.