US Consumer Spending Is Increasingly Driven by Richer Households

The consumers powering US economic growth are increasingly those who are higher up the income ladder, and likely enjoying a wealth effect from asset-price gains, according to research by Federal Reserve economists. 

In the two pre-pandemic years, average household consumption was growing at a similar pace across all income groups, the new Fed study of retail spending shows. But since then, spending patterns have diverged sharply. 

In the initial Covid period through mid-2021, low-income households increased spending faster than others with the help of public stimulus programs. But their consumption fell back after the last pandemic checks went out, while middle- and especially higher-income Americans have powered ahead. Overall, since the start of 2018, high-earning households raised spending more than twice as much as the low-income group. 

The findings cast new light on the robust US consumer demand over the last couple of years, which has surprised analysts and kept the economy growing at a faster pace than many had expected.