The Consumer Spending Mystery Is Really No Mystery
Economic inequality and imbalances explain much of the recent strength in household consumption.
The consumer spending riddle has been solved.
Photographer: Carl De Souza/AFP via Getty Images
Despite elevated inflation and interest rates, consumer spending among Americans rose a strong 2.3% in April from a year earlier. And that has been a pattern for several months, with some calling it a mystery. They want to know why people aren’t cutting back when almost everything is more expensive. It’s less of a mystery if you pay attention to the differences across households.
The first of this three-piece puzzle is acknowledging the deep income inequalities embedded under the hood of gross domestic product. Although the GDP numbers suggest an economy doing just fine, the reality is that the top 20% by income have more than $8 trillion of income, which is seven times that of the bottom 20%. GDP says more about Elon Musk than the cashier at Walmart – or the true health of the economy.