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According to Matthew Voss of JPMorgan, the economy is already in a “selective recession.”
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Low-income consumers are cutting back on spending while higher-income consumers are fueling the economy.
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According to data from the Federal Reserve, the wealth of the top 10% of U.S. income earners has increased by more than $30 trillion since 2020.
The US economy is being divided by a “selective recession”, with some consumers experiencing “enormous” wealth creation while others struggle to make ends meet, according to JPMorgan analyst Matthew Voss.
Stock analysts pointed to the disparity between lower-income and higher-income consumers, who are thriving, and cited as evidence the $40 trillion worth of spending they bring into the economy, roughly half of all U.S. consumer spending, Voss estimated.
But rising living costs appear to be leaving low- to middle-income consumers behind, Voss said previously, citing national retail sales data that shows the bottom 20% of consumers account for just 10% of spending in the overall economy.
“The backdrop that we face in our work is a selective recession, which means we’re going to have extreme volatility. We think that high-income consumers are going to generate a lot of the wealth,” Voss said in an interview with CNBC on Thursday. “Low-income consumers are the ice block that’s melting,” he added.
Over the past four years, America’s wealthiest have significantly increased their wealth: According to Federal Reserve data, the top 10% of households have increased their wealth by a staggering $30.5 trillion since 2022, while the bottom 50% of Americans have increased their wealth by just $1.8 trillion.
This is likely because the top 10% of Americans hold the lion’s share of household stock ownership, making lower-income households generally more vulnerable to inflation: 65% of households making less than $25,000 a year said they find inflation “very stressful,” about 23 percentage points higher than households making between $75,000 and $100,000 a year.
Middle-income consumers also say they’ve been affected by the cumulative price increases over the past few years: Fewer than half of middle-income households rated their finances as “very good” or “good,” while 68% rated their savings ability as “not very good” or completely “bad,” according to a second-quarter survey conducted by Primerica.
Other forecasters have warned of a consumer-driven recession as Americans pull back on spending. Real retail sales overall fell 4% in the first quarter from a year ago, which top economist David Rosenberg said could be a sign a consumer recession may already be on its way.
Read the original article on Business Insider