Facebook<\/p>\n
Tweet<\/p>\n
<\/p>\n Email Link<\/p>\n Falcon Heights, Minnesota \n Consumer spending is a crucial part of the US economy, accounting for about two-thirds of its growth. And judging from retail sales data released earlier this week, that economic engine appears to be running smoothly. Sales were up a strong 0.6% in August<\/a>, a month when spending was expected to be somewhat lackluster.\n <\/p>\n \n At face value, this latest data appears to be yet another testament to the sheer \u201cresilience\u201d of the US consumer, a storyline that\u2019s become all too familiar<\/a> these past several years: that \u2018despite (insert economic concern here), the US consumer is doing just fine and keeping the economy chugging along.\u2019\n <\/p>\n \n However, the solid gains are masking a deepening inequality among US households\u2019 economic experiences, a \u201cK-shaped economy,\u201d<\/a> where a small share of high-wealth Americans is seeing continued gains while a larger share of middle- and lower-income households is experiencing increased strain.\n <\/p>\n \n \u201cThe economy\u2019s prospects are tethered to the fortunes and spending of the well-to-do,\u201d Mark Zandi, chief economist at Moody\u2019s Analytics, told CNN. \u201cThose in the top 20% of the income distribution are driving the economic train.\u201d\n <\/p>\n \n And that gap is widening to a historic extent, Moody\u2019s Analytics data shows. As of June 30, the top 20% of earners accounted for more than 63% of all spending, and the top 10% accounted for more than 49% \u2014 both the highest on record, according to data that goes back to 1989. In 2019, during the comparable period, those shares were 59.2% and 44.6%, respectively.\n <\/p>\n \n \u201cIf [the top-earners] turn more cautious in their spending, for whatever reason, the economy will suffer a recession,\u201d Zandi said. That could happen if there were a significant correction in stock prices, he said, since much of the wealth that fuels spending by those \u201cwell-to-do\u201d individuals is tied to the robust financial markets.\n <\/p>\n \n The wealthiest households accounting for an even greater share of US spending growth is causing upward pressure on inflation and spurring speculative bets that could foment asset bubbles<\/a>. That could make the United States more vulnerable to a potential recession in the process, but it also risks setting back some Americans for years to come, economists tell CNN.\n <\/p>\n \n \u201cThe business cycle is always super depressing when we think about the different parts of the income distribution, because the lowest decile \u2026 in every single recession, they fall further and further behind,\u201d said Tyler Schipper, an associate professor of economics and data analytics at the University of St. Thomas, in St. Paul, Minnesota.\n <\/p>\n \n The widening spending inequality is happening at a time when the US economy is slowing, inflation is heating up and the job market is getting shakier<\/a>.\n <\/p>\n \n For some people, like Minnesota resident Calyssa Hall, money is tight, and especially so since the pandemic.\n <\/p>\n \n \u201cIt\u2019s been hard to bounce back totally,\u201d Hall told CNN. \u201cBut we are believing that all the good things are coming. I truly believe that I\u2019m going to get back to the point of abundance and non-panic \u2014 not spending like crazy but just being able to go and not worry about money.\u201d\n <\/p>\n \n The rising cost of living was top of mind as Hall and her friend visited the Minnesota State Fair in August. A venture that used to include purchases of artisan-made goods and a selection of different tastes and eats has been whittled down to a couple of food items.\n <\/p>\n \n To be fair, most state fair items have become much pricier over the past year. According to a price index (the fittingly named On-The-Stick Index) developed by economist Schipper and his University of St. Thomas students, fair prices rose by 7.7% from the year before \u2014 more than double overall inflation.\n <\/p>\n \n When tracking prices at the Minnesota State Fair this year, Schipper noticed that attendance was below average despite incredibly favorable weather. He attributed that to the fact that \u201cconsumer sentiment is lower, and the State Fair tends to be a place where you\u2019re maybe not as cost-conscious.\u201d One way to avoid paying higher prices is that some \u201cjust don\u2019t go to the fair at all,\u201d he said.\n <\/p>\n \n President Donald Trump\u2019s widespread and steep tariffs on US imports have weighed on consumer demand<\/a>, business investment and hiring, said Justin Begley, an economist at Moody\u2019s Analytics.\n <\/p>\n \n Still, on an aggregate basis, US households appear to be managing their debt and delinquencies haven\u2019t escalated to concerning levels, Moody\u2019s Analytics\u2019 US Household Debt report for August showed.\n <\/p>\n \n However, for lower- and middle-income households, that credit picture is looking less stable, according to a Moody\u2019s Analytics analysis of delinquencies by credit score (which is the closest proxy for income).\n <\/p>\n \n While overall delinquency rates are hovering around their pre-pandemic levels, the percentage of balances 30 days or more past due for households with sub-660 credit scores rose to 9.06% in July, the highest share since February 2016.\n <\/p>\n \n Additionally, credit scores are dropping<\/a> at the fastest pace since the Great Recession, according to new data released this week by credit scoring company FICO.\n <\/p>\n \n Overall wage growth is slowing, and the pandemic era trends where pay gains were faster for lower-income workers have reversed themselves and are now faster for higher earners.\n <\/p>\n \n At the same time, price stressors have been particularly acute for low- and middle-income households, Schipper said.\n <\/p>\n \n \u201cEconomists have long said that tariffs are regressive; they function as a consumption tax, and consumption taxes are more stressful for households that are spending more of their budgets on goods and services,\u201d he said. \u201cWe\u2019re also seeing middle-income households actually shopping at places like dollar stores and Walmart.\u201d\n <\/p>\n \n In Fishers, Indiana, Scott Goodwin\u2019s family recently started buying groceries at a different store.\n <\/p>\n \n \u201cWe\u2019ve changed grocery stores from the more, I hate to say, one of the more nice grocery stores to shop at locally; we used to go there for five to 10 years,\u201d he told CNN. \u201cAnd now, we went to another chain. My wife thought we can save more money by going to another store, so we\u2019re doing that.\u201d\n <\/p>\n \n The Goodwins have long taken a conservative approach to spending \u2014 they typically don\u2019t take trips, and instead they use the money to take care of bills, including student loan payments.\n <\/p>\n \n \u201cThe economy is always changing, it\u2019s changing now. Do I have as much spending power today as I did five years ago? Probably not,\u201d he said. \u201cWe\u2019re conscious of that. My wife and I pull back when we need to.\u201d\n <\/p>\n \n But recently, they\u2019ve pulled back more on what they spend on food and leisure, including cutting out concerts this year.\n <\/p>\n \n \u201cIs that because I\u2019m sick, or is that because of the economy? It could be a combination of both,\u201d said Goodwin, who was born with polycystic kidney disease, a rare genetic disease that has now progressed to Stage 5, or kidney failure.\n <\/p>\n \n More medical costs are on the horizon for Goodwin, as he\u2019ll start dialysis soon and desperately hopes for a transplant.\n <\/p>\n \n \u201cThere\u2019s a lot looming for me, medical bills being one of them,\u201d he said.\n <\/p>\n
\n <\/a><\/p>\n
\n \u00a0\u2014\u00a0<\/p>\n