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Spending’s Growth Engine: Lower- and Middle-Income Earners
When it comes to growth in spending, the horse pulling the cart over the past two years has been the bottom 60% of wage earners. That’s a departure from years past, when the top 40% of earners drove consumption in spending.
However, a Reuters report makes the point that the horse is getting leg-weary. Between mid-2012 and mid-2017, the increase in median expenditures outpaced growth in before-tax household income among the lowest 40% of wage earners. Conversely, the top 50% of earners have increased their financial cushions over the same time period, reported Reuters.
Hourly wages for those near the top and bottom of the earning spectrum rose by 4% in the year that ended March 2017, compared to 2% for lower- and middle-income households. Meanwhile, expenditures rose by 8%.
Since 2016, the lower 60% have fueled the increase in consumer spending through reduced savings and greater reliance on debt, according to Reuters. Evidence of strain is appearing in rising levels of auto loan and credit card delinquencies.
“They are taking on debt that they can’t repay,” Societe Generale economist Stephen Gallagher told Reuters. “A drop in savings and rise in delinquencies means you can’t support the [overall] spending.”
A spike in gasoline prices or an increase in the cost of goods due to tariffs could lead to “a rather dramatic scaling back of consumption,” Gallagher added.
A recent Federal Reserve survey that measured financial well-being found that one in four adults feared an emergency $400 expense, while 20% struggled with monthly bills. And incoming New York Fed President John Williams told Reuters in June that the lack of a safety net for many Americans remains a concern.
“Even though the overall picture is pretty good, solid or strong, this is a problem that continues to hang over half the country,” Williams told Reuters.
For comments, questions or concerns, please contact Paul Bubny
- ◦Economy
