{"id":156731,"date":"2025-11-27T18:35:03","date_gmt":"2025-11-27T18:35:03","guid":{"rendered":"https:\/\/www.newsbeep.com\/nz\/156731\/"},"modified":"2025-11-27T18:35:03","modified_gmt":"2025-11-27T18:35:03","slug":"k-shaped-economy-and-collective-holding-of-breath","status":"publish","type":"post","link":"https:\/\/www.newsbeep.com\/nz\/156731\/","title":{"rendered":"K-shaped economy and ‘collective holding of breath’\u2026"},"content":{"rendered":"

The Federal Reserve\u2019s latest Beige Book<\/a> shows a sharply diverging U.S. economy, where affluent households continue to spend while lower- and middle-income consumers begin to buckle under financial pressure: the clearest sign yet that the economy is splitting into something unmistakably K-shaped.<\/a><\/p>\n

The Fed\u2019s latest report describes a widening gap between America\u2019s social classes, with \u201cearly signs of strain on middle-income consumers.\u201d\u00a0<\/p>\n

On the lower end, households are cutting back on dining out, trading down to cheaper groceries, getting \u201csticker shock\u201d from car prices, and responding more sharply to price increases. Retailers across several Fed districts noted that budget-conscious shoppers have become increasingly sensitive to small changes in prices or promotions. Fast-food chains also saw a \u201cnotable decline in sales\u201d as lower-income diners pulled back.\u00a0\u00a0<\/p>\n

At the top of the income distribution, the picture looks very different. High-income households \u2014 those who benefit most directly from asset appreciation \u2014 continue to spend robustly. Travel bookings remain strong, discretionary purchases are holding up, and \u201chigher-end retail spending remained resilient.\u201d\u00a0<\/p>\n

The anecdotal evidence from different industry leaders echoes what has been clearly showing up in the data. Mark Zandi, chief economist at Moody\u2019s Analytics, found<\/a> that the top 10% of households now account for roughly half of all U.S. consumer spending \u2014 an unprecedented concentration that makes the economy look healthier on the aggregate than it feels to most people living in it.\u00a0<\/p>\n

However, much of the resilience among high-income consumers is being supported \u2014 indirectly but powerfully \u2014 by the explosive run-up in AI-related stocks.<\/a> Nvidia<\/a>, Microsoft<\/a>, Amazon<\/a>, and the broader data-center ecosystem have driven a market rally so strong that it\u2019s materially lifting household balance sheets for the wealthiest Americans.<\/p>\n

Albert Edwards, the self-described \u201cperma bear\u201d who offers the \u201calternative view\u201d as global strategist for Soci\u00e9t\u00e9 G\u00e9n\u00e9rale, recently told Fortune<\/a> that he was convinced of bubble-like conditions in markets, but that\u2019s nothing new for him. \u201cI think there\u2019s a bubble but there again I always think there\u2019s a bubble,\u201d Edwards told Bloomberg in a recent podcast appearance<\/a>, and he explained to Fortune that the inequality aspect makes it different.<\/p>\n

\u201cWhat\u2019s more worrying about the AI bubble,\u201d Edwards said, \u201cis how much more dependent the economy is on this theme, not just for the business investments, which is driving growth,\u201d but also the fact that consumption growth is being dominated so much by the wealthiest cohort. He added that the wealth of this cohort, \u201cinflated by the stock market,\u201d is a major concern and in the case of a big stock-market correction, this wealth and therefore the economy would be \u201chit very, very badly indeed.\u201d<\/p>\n

In multiple districts, Fed contacts reported to the Beige Book a noticeable sense of caution around that boom. Manufacturers described the moment as a \u201ccollective holding of breath,\u201d worried that AI spending might be running ahead of underlying demand.<\/p>\n

That creates an unusual dynamic: the very households holding up consumer spending are the same ones most exposed to any possible AI-driven market correction, as markets have recently feared.\u00a0If the AI boom slows, whether because of financing constraints, energy bottlenecks, or shifting corporate sentiment, the top of the \u201cK\u201d could weaken quickly. And because that top now drives such a large share of consumption, the overall economy would feel it almost immediately. AI-driven spending now accounts for half of GDP growth,<\/a> which is why the AI and crypto czar of President Donald Trump\u2019s administration, David Sacks, said on X <\/a>that \u201cWe can\u2019t afford to go backwards.\u201d<\/p>\n","protected":false},"excerpt":{"rendered":"The Federal Reserve\u2019s latest Beige Book shows a sharply diverging U.S. economy, where affluent households continue to spend…\n","protected":false},"author":2,"featured_media":156732,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[11],"tags":[251,138,784,219,788,782,111,43,785,783,786,139,69,787,255],"class_list":["post-156731","post","type-post","status-publish","format-standard","has-post-thumbnail","category-economy","tag-breaking-news","tag-business","tag-daily-news","tag-economy","tag-global-news","tag-inkl","tag-new-zealand","tag-news","tag-news-app","tag-news-headlines","tag-news-today","tag-newzealand","tag-nz","tag-today-news","tag-world-news"],"_links":{"self":[{"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/posts\/156731","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/comments?post=156731"}],"version-history":[{"count":0,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/posts\/156731\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/media\/156732"}],"wp:attachment":[{"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/media?parent=156731"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/categories?post=156731"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/tags?post=156731"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}