The party is still hopping in the VIP section while the rest of the room sips water and checks the tab. New spending data show the wealthy are keeping the music on, but lower income households are already headed for the exit.
What the numbers say:
• Bank of America finds spending rose nearly 2 percent in July for higher income households and about 1 percent for the middle, while the lowest third saw zero growth.
• Wage growth is slowing at the bottom. After tax pay rose 1.3 percent for lower earners, compared with 3.2 percent for higher earners.
• The Boston Fed reports that credit card balances are now above their levels before the pandemic for low and middle income groups, while balances for high earners are still below 2019.
• Consumer spending drives close to 70 percent of GDP. The lowest 30 percent of households account for less than 15 percent of total spending, so weakness at the bottom does not immediately stall the economy if the affluent and the middle keep buying.
A recovery led by affluent spenders can keep headline growth intact, yet it masks rising stress. Companies that sell to price sensitive customers lose pricing power and pull back on hours or hiring. Small businesses feel this first since they employ the most people and have thinner buffers. If markets wobble or bonuses fade, the wealth effect that supports top tier consumption can reverse and the cushion disappears fast.
Tariff driven price increases fall hardest on households that spend a larger share on goods. Cuts to health programs and social services in the recent tax and spending law reduce support just as budgets are stretched. With wage gains at the bottom cooling and debt climbing, even small shocks can force wider cutbacks.
The economy can look fine on the surface when a narrow slice keeps spending, but a healthy expansion needs broad based income growth and stable household balance sheets. Policymakers and business leaders should track pay at the bottom, delinquency rates, and small business revenues as closely as stock indexes. An economy that leans on a few big wallets is one bad week in the markets away from a chill. Go beyond the headlines…
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