The economic party rolls on for the rich. For everyone else, not so much
Why it matters: New data makes clear that while the good times continue for higher-income earners — strong wage growth, less debt — lower-income Americans are under increasing financial stress.
By the numbers: Spending increased nearly 2% in July from last year for higher income households, and 1% for middle-earners, according to a Bank of America Institute analysis released earlier this week.
For the lowest third of households, those earning roughly $50,000 a year or less, spending growth was zero, zip, zilch, nada — 0.0%, per the analysis, which looked at internal credit- and debit-card spending data from BofA.
Wage growth is slowing at the bottom, too. Up just 1.3% in July from last year, according to the bank's after-tax wage and salary data.
That's compared with 3.2% for higher-income households, those earning above $120,000 a year.
The big picture: For a few years after the pandemic, low- and middle-income Americans came out ahead — able to pay down debt with increased government support, and fast-growing wages courtesy of a hot labor market.
For a time, pay rose faster at the bottom of the income scale than at the top.
Those days are in the rearview mirror, as the WSJ recently pointed out. Data from the Atlanta Fed shows that wage growth among the bottom quarter is now slower than at the top — reversing the pandemic-era trend.
Where it stands: The Boston Fed looked at even more credit card data for an analysis out Wednesday. It found spending has grown only modestly for the lowest earners — while it is still climbing sharply for those earning more than $120,000.
At the same time, they found credit card debt is now back above pre-pandemic levels for low- and middle-income groups.
Those at the high end? They've got room to run. Debt is still below 2019 levels. And their spending is propping up the economy, the report concludes — following similar research from Moody's.
Zoom out: Consumer spending is the 800-pound gorilla when it comes to the American economy — making up nearly 70% of GDP.
And lower earners already do much less of it — the lowest 30% of households by income account for less than 15% of overall U.S. consumer spending, according to government data cited by BofA.
Reality check: That means, the spending slowdown at the lower end is less likely to stall the economy — that is, if the rich and middle-income earners keep spending.
And, overall the economy is still holding up, and spending in the aggregate increased in July, per BofA.
"If middle income households keep their heads above water, as they seem to be at the moment, then the overall picture for the economy is fairly solid," says David Tinsley, senior economist at the BofA Institute.
What to watch: The monthly government report on retail sales will be out later Friday morning. It should provide more details on how American consumers are spending.
Meanwhile, there are more headwinds on the horizon for lower earners.
Tariff increases are particularly painful — as this is a group that spends a larger share of income on goods, i.e., the stuff that is more exposed to tax increases on imports.
And the cuts in health programs and social services included in the "big, beautiful bill" will make them poorer, as a new Congressional Budget Office analysis pointed out earlier this week.
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