Despite elevated living costs and a tight job market, the U.S. economy is still strong. Moody’s Chief Economist Mark Zandi says it’s wealthy people who are keeping the economy afloat.
“The U.S. economy is being largely powered by the well-to-do,” Zandi said in an X post. “As long as they keep spending, the economy should avoid recession, but if they turn more cautious, for whatever reason, the economy has a big problem.”
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The Bottom 80% Just Keeps Up With Inflation
Although the “well-to-do” individuals are keeping the economy afloat, most people are barely keeping up with inflation. Zandi found that the spending for people in the bottom 80% of the income distribution has only kept up with inflation since the pandemic. They aren’t buying anything new but are just spending extra money due to rising living costs.
The bottom 80% of the income distribution is defined as people who make less than $175,000 per year. That’s why, as Zandi pointed out, “most Americans feel like the economy isn’t working for them.”
Lower interest rates can offer some relief for people who are deep in debt or want to refinance their properties. Lower rates do not guarantee higher inflation, but they tend to stimulate consumer spending, which can translate into higher inflation. Consumers should closely monitor the consumer price index readings over the next few months to see how low rates impact inflation.
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Asset Prices Dictate The Economy
The wealthy tend to build their net worths with assets like stocks and real estate. As these assets gain value, the wealthiest consumers will have more money to spend and can stimulate the economy.
Meanwhile, most people within the bottom 80% of the income distribution rely on wages for wealth accumulation. Wages don’t grow nearly as quickly as assets. For instance, the S&P 500 has doubled over the past five years. On the other hand, wage growth increased by 15.3% for the lowest earners over the past five years, according to an Economic Policy Institute analysis.
A sharp stock market correction or crash can have real consequences on the economy. Any pullback in stocks and real estate can cause wealthy individuals to reduce their spending. If wealthy consumers tighten their wallets, it limits the economy’s growth opportunities moving forward.
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The Top 10% Hold Most Of The Wealth
The Federal Reserve’s Distributional Financial Accounts chart showcases the distribution of household wealth in the U.S. since 1989. The results for Q2 highlight how much the rich have pulled away from everyone else.
Total household wealth came to $167.27 trillion in Q2, and $112.79 trillion was concentrated within the top 10%. Meanwhile, the bottom 50% only had $4.21 trillion of the total household wealth.
The last time the bottom 50% had more than 3% of the total household wealth was in Q3 2002. This group has never had more than 4.5% of the total household wealth since the Fed started to track it in 1989.
The top 0.1% of the population have been the biggest winners. They had 8.6% of total household wealth in Q3 1989, but that number has gradually climbed over the decades, reaching 13.9% in Q2. This figure has never reached 14% ever since the Fed started to track it.
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