Elite Americans are maintaining the economic survival, which isn't a positive indication
In recent months, the USA economy has been grappling with a number of challenging issues, chief among them the rising cost of living and inflation. These concerns were at the forefront of many minds during the Minnesota State Fair in August, as fair prices rose by 7.7% compared to the previous year.
The surge in inflation is largely due to a combination of factors, including the effects of tariffs on businesses and a general increase in service prices, particularly in travel-related sectors. Economists had anticipated that inflation would heat up in August, and this trend has continued in the following months.
However, the US Federal Reserve's rate cut, implemented in August, is not expected to alleviate the issues associated with the so-called K-shaped economy. The rate cut could potentially bring some relief to households struggling with credit card debt, but it may also exacerbate inequality by causing upward pressure on inflation and spurring speculative bets that could lead to asset bubbles.
The solid gains in consumer spending, which accounted for 0.6% growth in August, are masking a deepening inequality among US households. In fact, the top 20% of earners accounted for more than 63% of all spending in June 30, 2021, the highest on record. Similarly, the top 10% accounted for more than 49% of all spending, also the highest on record.
This trend towards increased spending inequality is a cause for concern, as lower- and middle-income households are more likely to spend their earnings. Inequality is dampening overall consumer spending, and economists are worried that the wealthiest households accounting for an even greater share of US spending growth could cause upward pressure on inflation.
The recently passed US tax law is expected to heavily benefit the highest-earning Americans. According to estimates, the corporate tax provisions in the bill could boost the top 1% of earners by $2 trillion, while the 0.1% could gain $60.3 billion.
Credit scores are dropping at the fastest pace since the Great Recession, and the percentage of balances 30 days or more past due for households with sub-660 credit scores rose to 9.06% in July, the highest share since February 2016. This suggests that many households are struggling to keep up with their debt repayments.
Refinancing mortgages could be a big help for some households in the next six months, providing some much-needed relief from high-interest debt. The strong sales growth in August was unexpected, as spending was expected to be somewhat lackluster. However, affluent households are still willing to pay for services, while a lot of households are curbing their discretionary spending.
Mark Zandi, the chief economist of Moody's Analytics, claims that spending inequality in the USA has expanded to a historically large extent, and that the wealth of the top 20% incomes drives the entire economic growth in the USA. President Donald Trump's tariffs on US imports have weighed on consumer demand, business investment, and hiring, further exacerbating these issues.
In conclusion, the US economy is facing a complex set of challenges, with rising inflation and inequality being the most pressing. The US Federal Reserve's rate cut may provide some short-term relief, but it is unlikely to address the underlying structural issues. It is crucial for policymakers to take decisive action to address these issues and promote economic growth that benefits all US citizens, not just the wealthy few.
