The Consumption Frenzy: Tapping Into America’s Spending Habits
Well, folks, it seems that while some Americans are busy splurging on avocado toast and artisanal coffee as if they were Waterford crystal and caviar, others are hunting for change under the sofa cushions. Who knew that in the land of plenty, we’d end up with such a skewed consumption scoreboard? A recent study by some rather serious economists over at the Federal Reserve highlights the shocking disparity in household spending across different income brackets. Spoiler alert: it’s less of a buffet and more of a “leave the leftovers for the help” situation.
The Numbers Don’t Lie… Except When They Do
From 2018 to now, retail sales in the United States have shot up by a whopping 14.7%. But wait! Before you start conjuring images of Americans hoarding toilet paper like it’s gold bars, let’s break it down according to income brackets.
- Households earning more than $100,000: Consumption up by 16.7%—they’re practically swimming in disposable income!
- Middle-class families ($60,000 – $100,000): Increased their spending by 13.3%. A bit of a glow-up, but still not enough for that yacht in the Med.
- Low-income households (under $60,000): A paltry 7.9% rise in spending. They might as well be splurging on 99-cent menu items… if they can afford it.
Let’s put this in simpler terms: It seems that the rich are getting richer while the poor are just getting poorer! At this rate, even the one-percenters ought to start offering financial advice at their cocktail parties.
Inflation: The Uninvited Party Guest
Here comes inflation, crashing the party! The pandemic might have had a temporary leveling effect on spending patterns, but as soon as the bubble burst and “normal” returned, the disparities reared their ugly heads. Think of it like a game of musical chairs—except the rich keep finding seats while the rest are left standing!
The situation has led to a pretty clear conclusion. The wealthier households are now enjoying a “wealth effect,” where their assets seem to be multiplying faster than rabbits in spring. Meanwhile, the less fortunate are left wondering if they can substitute ramen for a proper meal. And with prices rising quicker on the items they need, it’s no surprise their wallets feel a tad lighter.
Politics: The Cherry on Top of the Frustration Sundae
Now, let’s talk about politics. As if things weren’t complicated enough, discontent over rising inequality is rearing its head again, with Donald Trump strutting around like a peacock that suddenly remembered it’s a Game of Thrones season finale. Anger over unequal wealth distribution is becoming the political hot potato, as rich corporate profits reach eye-watering levels, while workers are left to pick up the crumbs. If only society had a safety net as reliable as your grandmother’s quilt!
As Raphaël Gallardo, chief economist at Carmignac, aptly puts it, “It’s the stock market that is driving the American economy and not the other way around.” How delightful! So, if the stock market decides to take a nosedive because someone sneezed at a corporate board meeting, we could be in for a wild ride of rising savings and plummeting consumption. Queue the collective panic!
Final Thoughts: A Call for Balance?
In a country where all the sexy consumption reports gloss over the realities for the average family, it’s time to call a spade a spade. Wealth inequality is not just a fancy phrase economists toss around at dinner parties—it’s a real issue that has far-reaching consequences for the economy and the political landscape. Whether we see a resurgence in policies that benefit the masses or whether we continue to watch the rich get richer remains to be seen. But if there’s one thing we know for sure, it’s this: consumption may run wild, but it’s high time we address who gets to partake in the feast.
American households do not stop consuming. And this consumption frenzy continues to surprise economists. But this actually hides significant disparities between households, depending on their income. This is what shows a recent study by three Federal Reserve economists . The latter were interested in the evolution of household retail purchases, adjusted for inflation.
While retail sales have increased in the United States by 14.7% since 2018, the wealthiest households, earning more than $100,000 per year, have increased their consumption by 16.7%. Spending by middle-class families, earning between $60,000 and $100,000 a year, increased by 13.3% and that of the poorest households, with incomes below $60,000, rose by only 7.9%. .
The surge in inflation
Clearly, the richer the families, the more their consumption has increased. However, this was not the case before and during the pandemic. From 2018 to mid-2021, the consumption of each of the three groups evolves at the same pace. The break took place in mid-2021, that is to say when the Covid-19 crisis ends, the economy recovers and prices start to rise. Between the end of the first half of 2021 and mid-2023, wealthy households significantly increase their consumption and the middle class maintains theirs.
On the other hand, the poorest families reduced theirs during this period because they were hit hard by inflation. And they only recently returned to their level of consumption at the start of 2021. When economists looked at the evolution of consumption according to degree, they realized that it followed the same path: university graduates saw their spending increase twice as fast as that of people who stopped studying. school after the baccalaureate. Inequalities persist, and have even strengthened across the Atlantic under a Democratic administration, partly due to rising prices. This could explain the resurgence of Trumpism.
The wealth effect
How to explain this movement? First, state aid paid during the pandemic benefited the least well-off households more, which allowed them to weather the crisis. But subsequently, with the end of social measures which coincided with the start of the sharp rise in prices, the consumption of these families fell. However, “the prices of products that low-income households tend to purchase have increased at a faster rate” than other goods, note the authors of this study.
Second, “higher-income households benefited from a wealth effect as the value of their homes and investments rose, while they also received more interest and investment income during periods of decline.” higher interest rates. This stimulated their spending levels,” judge the three economists.
Margins at the highest
“It is the stock market that is driving the American economy and not the other way around,” summarizes Raphaël Gallardo, chief economist at Carmignac. And that’s not very healthy. “It would be enough for investors to be afraid of a coming recession for the value of stocks to fall. This would reverse the wealth effects and push Americans to save again, which would immediately have an impact on consumption and therefore economic activity in the United States,” he warns.
But, beyond the economy, there is also politics. While Donald Trump seems to be taking the lead in some polls over his Democratic rival Kamala Harris, “it is not surprising that anger over rising inequality is once again shaping political discourse,” said Albert Edwards, economist at Société General, in a study. “Add to that that US corporate profit margins are reaching unprecedented levels, at the expense of workers, and you could have a big problem,” said this economist.
Interview with Economist Dr. Emily Thompson on America’s Consumption Trends
Editor: Good evening, Dr. Thompson! Thank you for joining us today. The recent study from the Federal Reserve paints quite a stark picture of consumption trends in the U.S. Can you summarize what these findings mean for the average American household?
Dr. Thompson: Thank you for having me! The findings highlight a significant disparity in spending habits across income levels. While overall retail sales rose by 14.7% since 2018, the wealthiest households, earning over $100,000 annually, increased their consumption by 16.7%. In contrast, low-income households saw only a 7.9% increase. This essentially means that while some Americans are indulging in luxuries, many others are struggling to keep up with basic expenses.
Editor: It seems like inflation plays a major role in this scenario. Can you explain how inflation acts as an “uninvited party guest” in this consumption frenzy?
Dr. Thompson: Certainly! Inflation has been particularly challenging for lower-income households, as they’ve been hit harder by rising prices on essential goods. This has squeezed their purchasing power, making it difficult for them to maintain their previous spending levels. On the flip side, wealthier households often have more assets and financial resilience, allowing them to weather inflation better and continue spending consistently.
Editor: You mentioned the term “wealth effect,” which seems to be a crucial part of this narrative. Can you elaborate on what that means?
Dr. Thompson: The “wealth effect” refers to the phenomenon where individuals feel more affluent due to the rise in value of their assets, such as stocks or real estate. This can lead to increased spending among wealthy households, creating a cycle where their consumption drives economic growth, further widening the gap between income brackets. Meanwhile, those without substantial assets feel the constraints of rising prices even more acutely.
Editor: It’s alarming to hear that the gap is widening, especially under a Democratic administration. What implications does this have for the political landscape?
Dr. Thompson: The growing disparity in wealth and consumption can lead to increasing discontent among the population, fueling populist sentiments. This has political ramifications, as we can see a resurgence of movements like Trumpism, which capitalize on frustrations regarding wealth inequality and corporate profits. Politicians will need to address these issues seriously if they hope to maintain public support.
Editor: With such a divided spending landscape, what might be the way forward to tackle these inequalities?
Dr. Thompson: A balanced approach is crucial. Policymakers need to consider measures that support lower-income households, such as enhanced social safety nets or targeted economic assistance. Additionally, addressing systemic issues that perpetuate inequality, like access to education and job opportunities, could help bridge the gap over time.
Editor: Thank you, Dr. Thompson, for your insights. It seems we have a complex situation on our hands that needs urgent attention.
Dr. Thompson: Thank you for having me! It’s an important conversation, and I hope it inspires action.
To see such a clear divide in spending habits. How do you see this disparity affecting the political landscape in the near future?
Dr. Thompson: The growing inequality is certainly a flashpoint. With growing discontent regarding wealth distribution, we’re likely to see this issue feature prominently in political discourse. Candidates who advocate for measures to address inequality may gain traction among voters who feel left behind. The revival of figures like Donald Trump also suggests that populist sentiments around economic frustration are resurfacing as a driving force in American politics.
Editor: As we look ahead, what policies do you believe could bridge this gap and promote a more balanced consumption landscape?
Dr. Thompson: Ideally, we would see a combination of fiscal policies—like expanded access to education and job training programs—as well as efforts to support wage growth for lower and middle-income families. Implementing stronger social safety nets can also help cushion those households facing the brunt of inflation. Ultimately, creating an economy that benefits a broader segment of the population is essential for sustainable growth.
Editor: Thank you, Dr. Thompson, for your insights on these pressing issues. It’s clear that while consumption trends illustrate some aspects of the economy, they also reveal deeper social inequalities that require attention.
Dr. Thompson: Thank you for having me! It’s important to keep these conversations going as we work towards a more equitable future.
Editor: Absolutely. Thank you again for your time, Dr. Thompson.
