America's consumer engine is leaning harder than ever on the rich, with new Moody's data showing the top 20% of earners now account for more than half of all spending while outlays by middle- and lower-income households flatline.
What Happened: The skew is masking underlying weakness in demand that could spill into hiring, since small businesses, which are the biggest job creators, are seeing softer traffic from less-affluent customers, states a fresh Axios report.
The concentration has accelerated over time. As revealed in a social media post by The Kobeissi Letter, since the fourth quarter of 2019, personal spending among the top 20% of U.S. households has jumped about 50%. By contrast, the middle class and bottom 40% increased their outlays roughly 25% -- about half that pace -- while average prices rose 24% over the same period.
As a result, the bottom 80% are barely outpacing inflation in their spending growth. Meanwhile, the top 10% now account for roughly half of all consumer spending, up from 36% three decades ago, according to Moody's.
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Because consumer spending makes up about two-thirds of U.S. GDP, an economy held up by a small slice of households looks resilient on paper but more fragile in practice. "The lower-income households are struggling, and you also see that on the corporate side, so those who serve that segment don't have pricing power," said economist Mohamed El-Erian to Axios, highlighting how weakness at the bottom can ripple through employers.
Why It Matters: Oxford Economics analysts say that the concentration brings a second risk that they refer to as the “wealth effect.” When stock markets climb, affluent households tend to spend more. When they wobble, that spending can fade quickly.
Ryan Sweet, chief U.S. economist at Oxford Economics, warns that a market pullback could prompt the rich to pull back too, undermining growth. Bloomberg analysts in March issued similar cautions about high-earner sensitivity to market swings.
For now, luxury and travel categories tied to high earners look sturdier than value segments serving squeezed households, a split several retailers and restaurants have echoed in recent quarters, according to a recent Reuters report.
Photo Courtesy: Claudio Divizia on Shutterstock.com
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