The US economy is showing troubling signs as job creation stalls and unemployment rates begin to rise, raising concerns among economists and policymakers. Even with increased focus on deterring migrants from coming, these indicators show the economy’s post-pandemic recovery might be slipping. That’s because the top 10% of earners account for close to half of all consumer spending. Given their outsized power, their lack of accountability poses an urgent threat to the sustainability of the current trajectory of our economy.
This reinforces recent data that US job creation has come to a standstill, an issue that has the potential to derail our economic expansion. As unemployment rates continue to rise, they’re suggesting deeper chasms of weakness behind the overall labor market. Yet the top tier of earners is driving consumer spending more than ever before. Together, they are responsible for the largest share of inflation-adjusted spending since the late 1980s. The dependence on affluent individuals to prop up the economy has drawn scrutiny as the Wall Street boom becomes crucial for continued growth.
You don’t have to be an economist to realize that the US economy is doing at best a mediocre job. Though inflation still weighs heavily and is a concern, with rates still close to 3%. This reality stands in stark relief to the UK where their inflation is almost twice the Bank of England’s 2% target. This inflationary pressure only further complicates the already historic economic crisis that policymakers need to tread through with extreme caution.
The US national debt has exploded to a dangerous 124% of GDP. This shocking number is a wakeup call to the very real fiscal dangers we will encounter down the road. Second, stock market exposure is unprecedented—30% of American wealth is in shares. When it’s panicked dependence on stock market performance, that’s a major red flag. If share prices continue to tumble, we may be staring into the abyss of another recession.
Jerome Powell, the Federal Reserve Chair, has recently commented on stock market valuations. He further claimed that they are “fairly highly valued.” This sustainability view is the source of alarm regarding the sustainability and/or wisdom of recent economic growth. If stock prices fall sharply, there will be serious consequences for the rest of the economy.
Speaking to reporters last week, Mark Zandi, chief economist of Moody’s Analytics, warned against being overly dependent on the wealthy. He stated, “As long as they keep spending, the economy should avoid recession, but if they turn more cautious, for whatever reason, the economy has a big problem.” This pinpoints the fragile and shallow recovery we have made so far, dependent on the spending habits of the top 10 percent.
The current economic reality is wildly different than what we faced in 2008. At that time, a collapse in the housing market led to a financial crisis as banks were heavily overexposed to real estate. No two market crashes are identical, but we can notice some trends. Sudden changes in market confidence can turn any market into a bubble.
Our central banks have made low inflation their number one goal and full employment their last priority since the 1970s. This approach, which has long informed the U.S. monetary policies, defines the ability of policymakers to respond today to persistent inflationary pressures. Even today, the balance between fostering growth while keeping inflation pressures at bay is their foremost concern.
Though the US economy has so far continued to handle these pressures, experts warn that it is dangerously close to tipping. Consumer spending patterns among affluent households will determine the fate of economic recovery. If they maintain their spending habits, the economy may stave off recession. Any shift towards caution could signal significant trouble ahead.