Wealthier Americans Drive Retail Spending, Powering U.S. Economic Growth Amid Inflation
Despite persistent inflation and rising borrowing costs, consumer spending in the U.S. has remained surprisingly strong, with wealthier Americans playing a key role in powering retail sales and driving economic growth. According to recent Federal Reserve data, the upper-income segment has been instrumental in sustaining spending, even as lower-income households face financial strain.
High-Income Consumers Fuel Economic Expansion
Affluent Americans, buoyed by rising home equity, stock market gains, and strong income growth, have continued to spend freely. This trend marks a shift from pre-pandemic spending patterns, where consumption grew more evenly across all income levels. The change is helping the U.S. economy maintain steady momentum, despite tighter monetary policies aimed at curbing inflation.
On Thursday, the Commerce Department reported a 0.4% increase in U.S. retail sales from August to September, reflecting consumer confidence. Notably, restaurant sales jumped by 1%, indicating that many Americans feel comfortable spending on dining out—a sign of economic resilience.
The Federal Reserve Bank of Atlanta now estimates that the U.S. economy grew at a robust 3.4% annual rate in the third quarter, bolstered by higher consumer spending.
Wealth Inequality Creates Spending Gaps
While higher-income households benefit from substantial gains, lower-income Americans have struggled with elevated costs for essentials like rent and groceries, leaving less room for discretionary purchases. Inflation-adjusted spending for households earning under $60,000 has grown just 7.9% since 2018, lagging far behind the 17% growth seen among those earning more than $100,000.
Fed economists note that from 2021 to 2023, spending among lower-income groups declined, reflecting how inflation has disproportionately affected them. However, as inflation-adjusted wages begin to recover, there are signs that spending within this group is starting to rebound.
Housing and Stock Market Boost Affluent Consumers
The wealth accumulation among high-income Americans has further fueled spending. Since the first quarter of 2020, home equity for the wealthiest 10% of households has surged by 70%, reaching $17.6 trillion. Additionally, their stock and mutual fund wealth has soared by 86% to nearly $37 trillion.
The S&P 500 index is up 22.5% this year, contributing to these gains, with approximately 80% of the stock market’s value held by the wealthiest 10% of households. This increased wealth has reduced the need for affluent Americans to save from their paychecks, enabling them to ramp up discretionary spending.
Strong Consumer Spending Defies Fed’s Tight Monetary Policy
Despite the Federal Reserve maintaining high interest rates, inflation-adjusted consumer spending rose 3% in 2022 and 2.5% in 2023. The April-June quarter alone saw spending increase by an annualized rate of 2.8%.
Michael Pearce, deputy chief U.S. economist at Oxford Economics, commented on the trend, saying, “It speaks to the ongoing strength of those Americans, which is still carrying overall spending.”
Even with higher borrowing costs for mortgages, auto loans, and credit cards, robust spending has kept the economy growing, easing fears of an imminent downturn.
Economic Growth Heading into 2024
As inflation pressures ease and lower-income groups gradually regain financial stability, consumer spending is expected to remain a key driver of U.S. economic growth heading into 2024. However, the disparities in spending across income levels will likely continue to shape economic policy discussions, especially as the U.S. presidential race heats up.
Source : Swifteradio.com
