Consumer spending among the rich is going to make a major difference through the coming economic turbulence.
Key details
The top 20% of American earners have historically been a huge help for consumer spending during times of economic recession and downturn. Wealthy consumers “can in some ways mean the difference between a short recession and a long one,” reports Barron’s.
“In the U.S. the top 20% of U.S. households account for nearly 40% of all consumer spending or 28% of gross domestic product. These Americans—whose mean income tops $176,000 a year after taxes, according to the Bureau of Labor Statistics—not surprisingly tend to weather economic downturns more easily; when they don’t, then it’s time to worry,” says Barron’s.
“Government data stretching back to the mid-1980s shows that highest income households didn’t slow their annual spending as much as overall consumers did in the 1990s, and this cohort didn’t even flinch during the dot-com bubble.”
Why it’s important
With travel and luxury goods sales rising, wealthy spending now is going to make a major difference as the country faces a possible recession. Their spending habits are going to indicate the pace of the recession.
“The upshot is that right now, it appears those at the top of the income spectrum are poised to keep spending, likely limiting the severity of any economic downturn,” says Barron’s.
The top 20% are not immune to inflation or other economic pressures, and there is a possibility that a severe downturn could cause wealthy households to reduce their spending, which would intensify economic conditions in the short term.
The wealthy have the assets to weather the recession unscathed, but the rest of the economy may suffer if the current trends do not hold.
“The top 20% of households are entering this uncertain economic period in good shape. This group, which owns roughly 74% of financial assets and 54% of nonfinancial assets (like houses) has nearly $60,000 in excess cash per household,” says Barron’s.