The US economy continues to baffle experts with its unpredictable behavior, presenting an array of unexpected developments that complicate economic forecasts. The growing disparity between the economic experiences of upper- and lower-income Americans is a significant factor contributing to these perplexing trends [c0137cdb].
The May jobs report showed contradictory signals, with strong job growth but also increased unemployment rates for 20- to 24-year-olds and a decline in job openings. Companies have indicated a pullback in consumer spending, with some consumers feeling the financial squeeze and adjusting their spending habits. The leisure and hospitality sector, particularly food services and drinking places, saw job gains, reflecting a shift towards spending on services rather than goods [c0137cdb].
Wealthier Americans, benefiting from low mortgage rates, a buoyant stock market, and high valuations of AI-related stocks, continue to spend and invest robustly. This economic resilience among wealthier individuals complicates the Federal Reserve's efforts to manage interest rates. The differing economic conditions faced by lower- and upper-income households create a challenging environment for economic policy and forecasting [c0137cdb].
The US economy quickly recovered in 2024 from the COVID-19 lockdown slump, with the Dow Jones Industrial Average hitting all-time highs and the Nasdaq composite also reaching new heights. Affluent Americans are driving the US economy this time around, with higher yields on government bonds delaying the Fed's rate cuts. The rising value of homes is causing trouble for the middle class, but affluent Americans are enjoying rewards in the commodities and stock markets. The wealth gains in stocks, fixed income, home prices, and crypto are contributing to the growth of the US economy. If affluent Americans are not making money in 2024, the US economy could crash. Torsten Slok, Chief Economist at the Apollo Group, highlights the significant wealth gains as a tailwind for the US economy's growth [583a664f].
Weakening sales at retailers catering to the upper middle class, such as Nordstrom, Apple, and Coach, indicate potential weakness in the U.S. economy. Richer Americans, including the upper middle class, are reducing their spending ahead of Black Friday, which is concerning for an economy that relies on consumer spending to avoid a recession. Best Buy and Lowe's have lowered their forecasts, and Kohl's reported a drop in sales. Affluent shoppers have a significant impact on consumer spending, and their reduced spending suggests potential weakness in the economy. An analysis of 30 large retailers and brands shows a decline in sales, with a median drop of 14% in the three-month period from August to October. Foot traffic at shopping malls in higher-income areas is also declining. The slowdown in spending among the upper middle class contrasts with overall retail sales growth in the U.S. since the pandemic. Factors such as high inflation, rising interest rates, and declining real incomes have contributed to the reduced spending. The value of homes, which is tied to the wealth of the upper middle class, has also been falling in some major markets. Shoppers are pulling back on big-ticket items and buying on credit has become more expensive. These trends suggest potential trouble ahead for the U.S. economy [583a664f].
Wealthy Americans have played a significant role in powering the US economy with their spending, but their spending habits may be changing. US household wealth has surged in recent years, driven by a robust stock market and rising home values. This has allowed consumers to withstand inflation and spend on travel, concerts, and big-ticket items. However, there are signs that wealthy Americans are becoming more cautious. Luxury retailers like Burberry and LVMH Moët Hennessy Louis Vuitton have reported declines in profits and demand for high-end products. Walmart, which traditionally caters to lower and middle-income Americans, has seen gains primarily driven by upper-income households. Overall, consumers have become more price-sensitive, and companies are feeling less comfortable pushing through price increases. Additionally, household debt and delinquency rates are on the rise, particularly among Gen Z credit card borrowers. While there are still pockets of strong spending, the shifting behavior of wealthy Americans is a sign that the economy's momentum may be slowing down [583a664f].
Real disposable incomes have risen only modestly over the past year. The saving rate now stands at a 16-month low as households have mostly exhausted the extra pile of cash they squirreled away during the pandemic. In turn, many Americans are increasingly relying on credit cards and other sources of financing to support their spending. These factors help explain why real spending — which excludes the impact from inflation — fell in April, with consumers shelling out less on cars, restaurants, and recreational activities. With the job market also cooling, companies like Best Buy Co. have noticed a change in recent months as shoppers switch to cheaper brands. Slower labor market momentum will continue to limit income growth and push more families to exercise spending restraint amid reduced savings buffers and higher debt burdens. The dip in April consumer spending reported Friday and the recent downward revision to the government’s estimate for gross domestic product in the first quarter provide fairly convincing evidence the US economy is coming off the surprisingly strong pace it set in 2023. Recent company earnings indicated that consumers have increasingly been prioritizing staples over large discretionary items. And higher-income consumers are trading down or hunting for deals, which helped boost sales at Walmart Inc. and discount retailer Dollar General Inc. [a9441323].
Consumer spending accounts for over 70% of U.S. economic activity. The U.S. is over 70% self-sufficient and doesn't rely heavily on other countries. However, disposable income is at 18-month lows, and several companies have reported weakening consumer spending. Household debt has risen, and a significant percentage of credit card balances and auto loans have fallen into delinquency. The $2.1 trillion in savings Americans built up during the pandemic years is now gone. First-quarter GDP growth was slower than expected, indicating a slowdown in the U.S. economy. The Fed may cut interest rates due to the economy teetering on the brink of recession. The Dow Industrial Average recently sold off, signaling potential downside in the market [583a664f].
The U.S. economy has continued to grow despite persistent inflation, with consumer spending being the primary driver. However, recent trends suggest a different picture. In the first quarter of 2024, U.S. economic growth was weaker than expected, with GDP increasing at a 1.6% annualized pace. The unemployment rate climbed to 3.9%, and lower-income consumers are spending less. The economy has bifurcated into the 'haves and have-nots,' with middle-class Americans struggling with rising prices and lagging wage growth. The recovery from the 2020 recession is seen as a two-pronged, K-shaped economy, where certain sectors thrive while others suffer, particularly hurting lower-income Americans. Low-income Black and Hispanic families may still be suffering despite data suggesting a resilient economy. The bifurcated economy may lead to conflicting inflation signals, making it difficult for the Fed to take crucial steps such as lowering interest rates. An overly strict monetary policy could make financial conditions tougher and result in reduced spending and investment [908d6494].
To improve growth and expand opportunity, embracing a mindset of abundance rather than stagnation is necessary. According to a survey by the Archbridge Institute, 82% of respondents considered freedom of choice in how to live essential to their view of the American Dream. 48% of respondents think they have more opportunities than their parents, but this number is lower for the 18-29 age group. Economic growth in the 1960s and '70s and the mid-1980s through the '90s likely influenced people's perception of opportunities. Young people who come of age during periods of slow economic growth exhibit more zero-sum thinking. Recent state-level GDP growth data show that the Southwest and Southeast regions had the strongest economic growth, while the Great Lakes and Mideast had the weakest. Economic growth is more than consumption and leads to nonmaterial benefits such as challenges, testing, exploring, and success. Embracing stagnation means less rewarding work, fewer opportunities, and ignoring what is possible. Pursuing abundance allows the American Dream to flourish [bc41a651].
The US economy is divided into two types of consumers, living in different worlds. The government measures consumer behavior, such as spending and confidence, but there are two distinct types of consumers. One type is buying and spending, while the other is struggling financially. The economy is not benefiting all Americans equally. The article suggests that policies should be implemented to address this inequality [bdfa7572].
US consumers are defying expectations and driving economic growth despite concerns of a slowdown. Strong consumer spending, low unemployment rates, and increased household wealth are key factors contributing to this trend. Government stimulus measures and the resilience of the housing market are also mentioned as supporting factors. The article argues that these positive indicators suggest that the US economy is more robust than some pessimistic forecasts suggest. However, potential risks such as inflation and supply chain disruptions are acknowledged, which could impact consumer sentiment and spending in the future. Overall, the article presents a balanced view of the current state of the US economy and the role of consumers in driving its growth [a4ab679f].
The US economy is experiencing a 'selective recession' where lower-income consumers are struggling while high-income households are seeing significant wealth creation, according to JPMorgan strategist Matthew Boss. The top 10% of American earners have gained over $30 trillion in wealth since 2020, while the bottom 50% have gained only $1.8 trillion. High-income consumers are driving around $40 trillion worth of spending into the economy, accounting for about half of all consumer spending in the US. Low-income consumers are contributing only 10% of the economy's total spending. The divide between low-income and high-income consumers is causing extreme volatility in the economy [380b4210].