Consumer spending in the United States has witnessed a notable resurgence as the economy rebounds from the impacts of the COVID-19 pandemic and subsequent shutdowns. Intriguingly, the highest quintile of households, comprising the top 20% of earners, has taken the lead in fueling consumer spending from 2020 to 2022, as outlined in a recent Morgan Stanley report.
Historical data reveals that from 2004 to the present day, this top quintile of earners typically accounted for approximately 39% of all consumer spending. However, the figure surged to 45% from 2020 to 2022, marking a significant uptick in their consumption patterns.
This development raises pertinent questions regarding the potential factors that could lead this affluent cohort to curtail or halt their spending habits. Analysts at Morgan Stanley posit that these high-income households traditionally scale back their expenditures during recessionary periods, particularly when they experience a decline in wealth due to plummeting stock or real estate prices, as seen during the tech bubble and the 2008 financial crisis.
Contrastingly, since 2019, both stock and home prices have exhibited a consistent upward trajectory, dispelling the conventional triggers for spending reductions among the affluent. In light of this, the Morgan Stanley team suggests that absent any substantial real estate losses or significant stock market downturns, these wealthy households may gradually taper their spending in the upcoming year, as the “post-COVID services recovery” phase recedes into the background.
While heightened consumer spending has bolstered the US Gross Domestic Product (GDP), it has also contributed to mounting inflationary pressures, disproportionately affecting lower-income households. McDonald’s CEO, Chris Kempczinski, acknowledged in a recent earnings call that amid escalating costs, “the low-income consumer… was negative from an industry standpoint.”
The lavish spending habits of affluent consumers currently spearhead the ongoing expansion of the US economy. However, it is the potential shifts in spending patterns—precisely what could prompt the wealthy to exercise restraint—that will shape the next phase of America’s economic recovery.
As the nation grapples with the repercussions of this consumption trend, economists and policymakers are closely monitoring the evolving dynamics, mindful of the broader implications for income inequality and overall economic stability.
Source: Yahoo Finance
