- by New Deal democrat
For awhile now I have been writing about how the wealth effect has been powering sales among upper income households. Earlier this year the Minneapolis Fed took a look at the phenomenon, comparing data from several different sources, including Moody’s:
The New York Fed:
And Bank of America:
They noted that “While Moody’s pegs a sharp break after 2020, Bank of America did not observe a widening gap in their data until mid-2025, when a large separation in spending growth opened between lower-, middle-, and upper-income customers—arguably more ‘E’ than ‘K’”
Interestingly, while they don’t supply any explanatory data, in their conclusion they note:
For each measure above, households are stratified by income. This is a natural consequence of the available data; from credit card issuers to market research firms to U.S. government surveys, income is the common denominator.
“However, wealth—rather than income—increasingly distinguishes the most well-to-do U.S. households. According to the Federal Reserve Board, household wealth has become increasingly concentrated among the top 0.1 percent. And there is ample evidence that wealth (independent of income) empowers spending, with asset-rich individuals able to borrow against their holdings and fund very high levels of spending.
This is particularly noteworthy because in the past four years there has been a huge divergeance between income and wealth, at least as measured by stock market gains. As shown in the graph below, total personal income has risen 23% since September 2022, while the stock market has doubled - it’s up 100%!
All of this adds to the evidence that at the moment the US economy *is* the stock market. Which also means that, if all else stays the same (or reasonably close thereto), a sharp selloff in the stock market is likely to prompt a sharp decline in consumer spending - which can easily become a vicious cycle, which would be broken only when sales come more in line with income growth (or, heaven forbid, decline).