America economy Doing different: booming for some, going broke for many.
In other words, it looks like Kashmir shaped – One branch climbs while the other falls.
Things are going well for those with upper arms. Now almost the top 10% of American households are half of all consumer spendingexcited by the record stock market at its peakAccording to the , hourly wages are now rising fastest for the highest earners, reversing a pandemic-era trend that favored the lowest-paid workers. Federal Reserve Bank of Atlanta,
Meanwhile, people with lower arms are feeling the pressure. Grocery prices recently posted fastest monthly growth In about three years, the job market is cold There are more subprime borrowers fall back On their car loan.
Peter Atwater, the behavioral economics expert who popularized the K-shaped idea, said, “There are now two Americas: a few, tiny pockets of invincibility amidst a rising sea of despair.” wrote last month,
Industries have also become divided. AI investment is boomingbig banks are record strong profits And premium credit cards packed with benefits are thriving – American Express fee now $895 per year for its Platinum card.
The companies selling both branches have seen divestment. McDonald’s CEO Chris Kempczinski Recently warned A “two-tier economy” in which middle- and lower-income consumers are under “great pressure”.
“Even toothpaste sales are a little weak — people are taking more money out of the tube,” said Tony DeSpirito, global chief investment officer of fundamental equities at BlackRock. told Bloomberg This week.
Where is the division visible?
Talk of a “K-shaped” recovery began during the pandemic, when higher-income households and select industries bounced back far more quickly than others.
In 2021, Labor Department researchers concluded that the lowest-paid workers suffered the greatest declines in employment and subsequently experienced the slowest recovery.
“Increased inequality caused by the pandemic may be an issue for years to come,” the report warns.
Since then, deviations have begun to appear in both subtle and unmistakable ways.
car market
Average price paid for a new car recently passed hit the $50,000 mark for the first time, a record boosted by luxury buyers.
“Today’s auto market is being driven by wealthy families who have access to capital, good loan rates and are moving into the higher end of the market,” said Erin Keating, executive analyst at Cox Automotive.said in a statement,
Cheap new cars have almost disappeared.
“The $20,000 vehicle is now mostly extinct, and many price-conscious buyers have sidelined or hovered over the used vehicle market,” Keating said.
The share of trade-ins with negative equity has risen to nearly 30% and underwater borrowers owe an average of $6,905 more than their vehicles are worth. according to edmonds,
Sign of trouble ahead: Share of subprime auto loans whose payments are 60 days or more latehit a recordMore than 6% this year,Fitch shows ratings data,
Airfares and Hospitality
This division is also visible in travel.
Delta and United Airlines have pulled forward By focusing on premium offerings in an industry known for extremely low margins.
“Premium products used to be loss leaders and now they are the highest margin products,” Delta President Glenn Hauenstein said at an event. recent earnings call,
Meanwhile, budget carriers prefer Soul, marginal And jetblue All have struggled to turn a profit as more cost-conscious travelers hold back.
Hilton has also had success at the upper end of the market, as CEO Chris Nassetta noted company earnings call That its luxury business is performing “really well”.
What could this mean for the overall economy?
The rapidly growing K-shaped economy is not a crisis in itself, but it does have risks – with fewer homes and sectors powering growth.
If spending at the top slows or stock market confidence falters, momentum could diminish rapidly.
“As long as they keep spending, the economy should avoid a recession, but if they become more cautious for any reason, the economy has a bigger problem,” said Mark Zandi, chief economist at Moody’s Analytics. wrote in September,
Concerns about a “hey bubble“There is also increased concern about an imbalanced economy, which is being compared to the dot-com boom of the late 1990s.
Journalist and author Derek Thompson said, “There really seem to be two economies right now – a booming AI economy and an economy lacking everything else.” wrote in a recent essay,
Harvard economist Jason Furman it is estimated More than 90% of demand growth in the US economy during the first half of the year came from just two GDP categories – information processing equipment and software.
It remains to be seen whether investments in AI pay off, but for now, America’s expansion appears to rely on a narrower base than before.
