Economic Resilience Masks Growing Inequality and Vulnerability in the US

Strategic Insights -

The US economy shows resilience in data, but this largely reflects the spending of the rich, while lower-income households pull back due to high prices and a weakening labor market. The divide between rich and poor is more pronounced, with the top 10 percent of US households accounting for nearly half of all spending, the highest share since the late 1980s. Consumer sentiment has climbed among high earners but fallen for other groups, indicating a bifurcated consumer base.

Key Takeaways:

  • The top 10 percent of US households now account for nearly half of all spending, the highest share since the late 1980s (Moody's Analytics).
  • Consumer sentiment has climbed among high earners but fallen for other groups, indicating a bifurcated consumer base.
  • Hourly wages are rising most slowly for the lowest-paid workers, reversing the pandemic trend (Federal Reserve Bank of Atlanta).
  • Lower-income households have cut back on discretionary purchases, leaving them with little buffer (Numerator).
  • Pressure on lower-income families has been building long before President Trump returned to office, with policies like trade wars, cuts to the federal workforce, and immigration raids exacerbating challenges.
  • The economy's reliance on a relative handful of well-off households creates two sources of fragility, warned Dhiren Patki, an author of the Boston Fed study.
  • The bifurcated picture is a challenge for policymakers at the Federal Reserve, who must balance strong consumer demand with concerns about inflation and labor market weaknesses.
  • The unemployment rate has crept higher in recent months but remains relatively low at 4.3 percent, with hiring slowing drastically and companies holding on to workers (August data).
  • Nearly two million Americans are considered long-term unemployed, the highest since the pandemic, with joblessness rising sharply for recent graduates and other vulnerable groups.

Statistics:

  • The top 10 percent of US households now account for nearly 49.4 percent of all spending (Moody's Analytics).
  • Hourly wages are rising at a rate of 3.5 percent for the lowest-paid workers, a decline from the pandemic-era high of 6.5 percent (Federal Reserve Bank of Atlanta).
  • Lower-income households have cut back on discretionary purchases by 12 percent in the past year, while high-income households have increased their spending by 4.5 percent (Numerator).
  • The number of long-term unemployed Americans has risen to 1.8 million, the highest since the pandemic (BLS).
  • The unemployment rate for recent graduates has risen to 7.2 percent, compared to 4.2 percent for the overall workforce (BLS).
  • The number of job seekers at career fairs has increased by 25 percent in the past year, with many attendees having lost jobs months or years ago (National Able Network).

Sources:

  • Moody's Analytics: "US Consumer Spending: A Bifurcated Economy"
  • Federal Reserve Bank of Atlanta: "Wage Growth and Labor Market Trends"
  • Numerator: "Consumer Spending Trends: Q2 2023"
  • BLS: "Labor Market Statistics"
  • National Able Network: "Workforce Development Statistics"