The rich are powering spending, with the U.S. economy in a danger zone
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The health of the economy increasingly depends on rich people spending money, a new analysis of government data finds.
Why it matters: That puts the U.S. in a fragile place because consumer spending drives growth — so the entire economy is now relying on a smaller number of people to keep things afloat.
Zoom in: The chart above illustrates what wonks call the K-shaped economy — where the rich keep doing better, and the rest fall behind. It's a divergence that maps out like the two prongs of the letter K.
By the numbers: 59% of all consumer spending now comes from the top 20% of income earners in the U.S., a near record high, according to a Moody's Analytics analysis of recently released numbers from the Federal Reserve.
- Only 41% of consumer spending, meanwhile, comes from the bottom 80% of income earners — a record low.
The big picture: High levels of inflation and a lackluster job market is weighing on most people, and their level of spending has stayed flat.
- But at the high end, things are looking pretty good — particularly for those in the stock market.
- Market gains have driven record levels of riches. The share of total wealth held by the richest Americans is now at the highest level since World War II, Bloomberg reported Wednesday.
What they're saying: "The economy is narrowly perched on the backs of the well-to-do," says Mark Zandi, chief economist at Moody's.
- If the rich stumble, if the stock market tumbles, then a recession would be more likely then not, he adds.
- An economic downturn would then fall hardest on lower-earning working people, at risk of losing their job.
Zoom out: This widening inequality helps explain the deteriorating consumer sentiment among most Americans over the past few years, Zandi says.
- It also explains, he says, the growing social disconnect in the U.S. — and the rise of extremist views on both sides.
- There's this massive group of people whose standard of living hasn't changed. "It's just a lot of anger."
