Spending climbs among the rich, as everyone else's debt rises, study says
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Spending among the rich is propping up the economy, per a report analyzing detailed credit card data out Wednesday from the Federal Reserve Bank of Boston.
Why it matters: These big spenders are masking increasing fragility in the economy among low- and middle-income Americans, who are seeing rising debt levels and slower spending growth — a situation that doesn't bode well for the economy overall.
Zoom in: The Boston Fed analyzed large-scale credit card data that cover about 80% of card balances in the U.S., and includes information on monthly spending, debt balances and income when the account was opened.
- They looked at spending and debt across low-, middle- and high-income earners, and found that for the lowest-income group (earning less than $39,000), spending increased sharply in 2021 and 2022, and has since grown only modestly.
- The same trend largely held for middle-income earners.
- But spending for those earning $120,000 and up has continued to climb.
Threat level: At the same time, credit card debt is now back above 2019 levels for the low- and middle-income groups.
- For the highest earners, debt is still below 2019 levels. That means this group has more to spend, says Dhiren Patki, a senior economist at the Boston Fed who coauthored the research.
- "That's potentially a force propelling their relatively strong spending today."
Between the lines: Any kind of economic shock — job loss, big price increases — is going to be harder for low- and middle-earners to absorb, which would further depress spending among those groups.
- That decline would have all kinds of spillovers, slowing down growth.
The big picture: For a few years coming out of the pandemic, low- and middle-income Americans were coming out ahead — able to pay down debt with the increased government support of those years.
- And for a time, wage growth at the bottom was higher than at the top.
- But those days are in the rearview.
What to watch: There are more shocks on the horizon, including cuts from the "big, beautiful bill," which is now law, and higher tariffs that will disproportionately hit lower earners hardest.
