U.S. Economic Growth Increasingly Reliant on High-Income Households Amid Middle-Class Spending Retreat
## U.S. Economic Growth Concentrated Among Affluent Consumers
The U.S. economy is exhibiting a notable bifurcation, with its overall resilience increasingly driven by the robust spending of high-income households, while lower and middle-income segments pull back due to persistent financial pressures. This divergence in consumer behavior is drawing scrutiny from economists and corporate executives, highlighting potential vulnerabilities within the broader economic structure.
## Shifting Dynamics in Consumer Spending
Data from Moody's Analytics indicates that the wealthiest 10% of U.S. households, defined as those earning at least $250,000 annually, now comprise nearly half of all consumer spending. This figure represents the highest share in 35 years, a significant increase from approximately 36% three decades prior. Between September 2023 and September 2024, this affluent group boosted their spending by 12%. In stark contrast, while the bottom 80% of earners increased their spending by 25% over the past four years, this barely kept pace with a 21% rise in consumer prices during the same period. The top 10% of households, conversely, saw their spending rise by 58% over four years.
Companies across various sectors are observing these shifts in purchasing habits. **Kroger Co.** (**KR**) reported that lower and middle-income shoppers are increasingly utilizing coupons, opting for cheaper store brands, and reducing dining out. **Procter & Gamble Co.** (**PG**) noted that while affluent consumers are purchasing larger pack sizes, those with tighter budgets are actively seeking deals. Similarly, **O'Reilly Automotive Inc.** (**ORLY**) has seen its do-it-yourself customers deferring more significant repairs. Executives at companies such as **Chipotle Mexican Grill Inc.** (**CMG**), **Hilton Worldwide Holdings Inc.** (**HLT**), and **Ethan Allen Interiors Inc.** (**ETHA**) have cited this trend of lower-income consumer pullback in recent earnings calls.
## Market Implications of a Bifurcated Economy
Economists have likened the current U.S. economic structure to a precarious "Jenga tower," implying that its stability is disproportionately reliant on the wealth and spending of high-income households. This makes the economy more susceptible to a pronounced slowdown should factors, such as a downturn in the stock market, negatively impact the wealth of these top earners. Federal Reserve Chair **Jerome Powell** has acknowledged and stated that officials are carefully observing signs of this bifurcated economy, particularly following the central bank's recent interest rate adjustments.
Businesses heavily dependent on broad consumer volume, especially from lower- and middle-income segments, face heightened risks. The **consumer discretionary** sector, in particular, is vulnerable during periods of declining consumer confidence. For instance, fast-casual dining chains like **Chipotle Mexican Grill** (**CMG**) and **CAVA Group** (**CAVA**) have experienced softness among their lower-income patrons, even as higher-income customers maintain visitation. The financial services sector could also face challenges, including potential increases in default rates on credit cards and personal loans, which may lead to tighter lending standards. Conversely, firms with robust balance sheets and diversified revenue streams, such as **JPMorgan Chase** (**JPM**) or **Bank of America** (**BAC**), are generally better positioned to navigate such economic shifts.
## Broader Context and Future Outlook
The strain on lower- and middle-income households is multifaceted. Consumer prices have collectively risen by 27% since the onset of the pandemic. Additionally, the resumption of student loan payments and an increase in subprime borrowers, as noted by credit reporting firm TransUnion, further constrains disposable income for these groups. **Michael Skordeles**, head of U.S. economics at Truist Advisory Services Inc., attributes the pullback by middle-income consumers largely to poor economic sentiment.
**Mark Zandi**, chief economist at Moody's Analytics, estimates that the spending by the highest earners now constitutes nearly a third of the gross domestic product. This growing dependency suggests that the overall economic trajectory is increasingly tied to the financial health and spending patterns of a smaller, wealthier demographic. As the "split economy" continues, growth is likely to polarize rather than spread broadly across income levels. Monitoring key economic indicators, corporate earnings reports for signs of spending divergence, and Federal Reserve commentary will be crucial in assessing the durability of this growth model and the potential for wider economic impact in the coming periods.
