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One of the big arguments that the media makes is that the economy must be good because consumer spending keeps roaring along. Even though in poll after poll, Americans talk about how the economy is good, the media and its experts act like people don’t really believe it because… they keep spending money.
There are two factors at work here.
One is that everything tends to cost more so spending keeps rising. That’s inflation in action. When food prices are up 30%, spending will rise because people need to eat. The other side of the coin is that we have two economies. And some people are doing quite well while a lot of others are not.
Call it the two-speed economy. Rich Americans are spending at healthy rates, driving overall demand — but there are early signs that low- and middle-income consumers are starting to cut back.
But Bank of America Institute recently analyzed card spending and found that after “being a point of strength during 2023, it appears that lower- and middle-income households’ spending growth has been softening,” though it remains in positive territory year over year.
Meanwhile, as recently as this past June, University of Michigan survey data showed similar levels of consumer sentiment between bottom-third earners and top-level earners. But the gap between them has widened sharply since then, with top earners much more positive about conditions in recent months.
And delinquencies on credit card debts and auto loans have ticked up in recent months to the highest levels in more than a decade.
As a result, companies are increasingly focusing on consumers with disposable income even for those associated with middle or lower-income tier products.
“What has been important is to understand there’s a section of the population that has come under pressure from disposable income,” Coca-Cola CEO James Quincey said on the company’s earnings call last month.
“On the other hand, there’s a segment of consumers that still has plenty of money, plenty of purchasing power and we’ve seen strong growth for some of the higher price point” products, Quincey added.
Fast-food giant McDonald’s noted a similar phenomenon.
“[W]here you see the pressure with the U.S. consumer is that low-income consumer, so call it $45,000 and under. That consumer is pressured,” CEO Christopher Kempczinski told investors last month.
“If you think about middle income, high income, we’re not seeing any real change in behavior with those,” Kempczinski said. “But the battleground is certainly with that low-income consumer.”
In a bad economy, you don’t chase struggling customers, you hike prices and upsell your products. Consumer spending goes up because the segment that can afford your products and services keeps buying, while the segment that can’t will either struggle to occasionally splurge or aren’t profitable enough to be worth the trouble anyway.
That’s the glory of Bidenomics. It’s a Potemkin Village that looks good when you pick and choose statistical measures with no context and no ‘tree-level’ insight.
Wiping out the middle classes. Plutocracy.
The middle class is the repository of societal values. That’s why the Left hates it and tries to destroy it wherever it gets its hooks in. Like here.
Thanks Kasandra! Ironically all this stuff was already tried back in Ancient Greece, because they had so many independent city states. So Aristotle had a lot of case studies for his political studies.
Totally. Because when Trump was president this wasn’t true at all. That’s why he gave the rich the biggest tax cut in history. Amazing analysis, Daniel!
Yea, Trump gave me a nice tax cut too, and I’m just middle class. So explain to me how rich people keeping more of their money hurts me? I’ve never been clear on that.
And you really don’t want Americans comparing our lives and economic prospects then with now
Am still Upper Middle Class but lost all my deductions due to the Trump tax policies. And guess what I still did okay and understood that most of the rich lost those deductions as well.
I didn’t like it but understood not all of us could gain. Lost a hell of a lot more under BidenFlation
spending is easy. I wonder what the debt/income ratio of Americans is.
“Reaganomics”: associated especially with the reduction of taxes and the promotion of unrestricted free-market activity, or, cutting taxes generates more revenue.
Bidenomics, (a cheap name rip off) is a complete 180 deg. reversal of that policy, while falsely claiming the same (or better) results, except the part where they leave out the rich getting richer.
Thanks World! There is a point of diminishing returns when raising taxes.
They want us all to live in Poverty and on the Streets while Migrants who vote for Democrats live in our homes
They also favor squatters taking over private homes, and arresting the homeowners who object.