Elite segment of Americans perpetuating economic life, a concerning development
In recent months, inflation has been on the rise in the United States, with tariff-related effects and higher services prices playing a significant role. This economic trend has had a noticeable impact on consumer spending, particularly in the Horeca (Hotels, Restaurants, Catering) sector, where spending has grown due to increased disposable income. For instance, beef consumption increased by approximately 20% from 2021 to 2022, and retail sales have shown a growing demand, especially for cheaper products like ground beef.
However, the economic landscape is not uniform. The Armutsquote, or poverty rate, has decreased from 14.8% in 2014 to around 11.1% in 2023, suggesting a more equitable distribution of income. Yet, income and consumption disparities persist across ethnicities, with higher poverty rates observed among African Americans and Native Americans.
The Federal Reserve recently cut rates for the first time this year, lowering its benchmark interest rate by a quarter point. This rate cut could provide some relief to households struggling with credit card debt and those looking to refinance their mortgages. However, the rate cut may not be a significant solution to the economic issues related to the K-shaped recovery, a term used to describe the divergent paths of economic growth experienced by different income groups.
The widening gap between affluent and lower-income households is making overall spending weaker. Diane Swonk, chief economist at KPMG, has stated that affluent households continue to spend on services, while lower- and middle-income households are curbing their discretionary spending. If the top earners reduce their spending, it could lead to a recession, according to Mark Zandi, chief economist at Moody's Analytics.
The wealthiest households' increased spending is causing upward pressure on inflation and could lead to asset bubbles. This trend is evident in the top 10% and top 20% of earners accounting for more than 49% and 63% of all spending, respectively, in June 2021, the highest on record.
The rising cost of living is making it difficult for some Americans, such as Minnesota resident Calyssa Hall, who has had to change her grocery store to save money due to economic changes. Credit scores are dropping at the fastest pace since the Great Recession, according to FICO's new data, and delinquency rates for lower- and middle-income households are looking less stable, according to Moody's Analytics analysis.
In conclusion, the economic growth in the United States is masking a deepening inequality among households. As the Fed continues to monitor the economic landscape, it remains crucial to address these disparities to ensure a sustainable and equitable recovery.
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