Income Inequality Widens, Fueling US Economic Disparity

Consumer Spending Concentrated Among Wealthy Households

In Walnut Creek, California, economic data reveals a growing divide between America's wealthy and non-wealthy classes. Despite low unemployment and stable inflation, a stark income gap has emerged.

High earners (>$153,000 annually) are driving consumer spending, while Americans in lower income brackets (<$73,000) face financial struggles. This wealth divide makes the economy vulnerable to asset price declines, such as those in stocks, homes, and cryptocurrencies.

Lower- and Middle-Income Households Rely on Credit

While lower-income households have maintained employment and wage growth, they lack access to rapidly appreciating assets. To maintain purchasing power, they increasingly rely on credit cards with high interest rates (over 20%).

Consumer Debt at Highest Level in Years

Delinquency rates on consumer debt are at a five-year high, with credit card delinquencies exceeding 11% - the highest since 2011. Active credit card accounts making only the minimum payment have also reached a 12-year peak.

Spending Growth Disparity

Prior to the pandemic, consumer spending growth was relatively consistent across all income levels. However, higher-income households' spending growth accelerated since 2021, a trend that has persisted with some recent slowing.

Widening Wealth Gap

Credit scores indicate that high credit scores are at record highs, while low scores are rising after years of decline. Can Arkali of FICO notes that missed bankcard payments surpass pre-pandemic levels.

Nonprime Borrowers at Risk

Nonprime borrowers (credit scores <660) are facing particular financial distress, with payment defaults and debt levels increasing at a high rate.

Cautious Optimism Amidst Economic Stress

Despite concerns, there are no signs of an imminent crisis. Consumers are spending more cautiously and reducing debt, but trends suggest increasing consumer stress. As Philadelphia Federal Reserve economists note, consumers are spending more, accumulating higher balances, and paying off less debt.