Reuters, July 23, 2018: Mortgage, Groupon and card debt: how the bottom half bolsters U.S. economy
A Reuters analysis of U.S. household data shows that the bottom 60 percent of income-earners have accounted for most of the rise in spending over the past two years even as the their finances worsened – a break with a decades-old trend where the top 40 percent had primarily fueled consumption growth.
With borrowing costs on the rise, inflation picking up and the effects of President Donald Trump’s tax cuts set to wear off, a negative shock – a further rise in gasoline prices or a jump in the cost of goods due to tariffs – could push those most vulnerable over the edge, some economists warn.
That in turn could threaten the second-longest U.S. expansion given consumption makes up 70 percent of the U.S. economy’s output.
To be sure, the housing market is far from the dangerous leverage reached in 2007 before the crash. With unemployment near its lowest since 2000 and job openings at record highs, people may also choose to work even more hours or take extra jobs rather than cut back on spending if the money gets tight.
In fact, a growing majority of Americans says they are comfortable financially, according to the Federal Reserve’s report on the economic well-being of U.S. households published in May and based on a 2017 survey.
Yet by filtering data on household finances and wages by income brackets, the Reuters analysis reveals growing financial stress among lower-income households even as their contribution to consumption and the broad economy grows.
