Recent data reveals a troubling trend in consumer spending among Americans, highlighting a growing divide between higher-income households and their lower-income counterparts. According to the Federal Reserve Bank of New York, affluent individuals, particularly those earning over $125,000 annually, have significantly increased their expenditure over the past three years, exacerbating economic inequality and contributing to a less optimistic outlook for the economy.
Spending Patterns Reflect Economic Inequality
The report, released on Tuesday, indicates that while households with incomes of $125,000 and above have raised their spending by 2.3 per cent when adjusted for inflation, those in the middle-income bracket, earning between $40,000 and $125,000, have seen a modest increase of just 1.6 per cent. In stark contrast, lower-income households, earning below $40,000, have only managed a 0.9 per cent rise in their spending.
This disparity suggests a K-shaped economic recovery, where the affluent are thriving while those at the lower end of the income spectrum are struggling. The data highlights that poorer households are disproportionately affected by inflation, as a greater portion of their expenses go towards essentials like housing, groceries, and utilities—items that have experienced steep price increases since the pandemic began.
The Impact of Education on Spending
The findings also reveal a significant correlation between education levels and spending behaviour. Households without a college degree experienced a decline in inflation-adjusted spending, falling below January 2023 levels until November 2024. In contrast, college-educated households have increased their spending by 4 per cent during the same period. This divergence further illustrates the economic challenges faced by those with less education, reinforcing the narrative of a K-shaped economy.
Rajashri Chakrabarti, an economic research adviser at the New York Fed, notes that the spending trends of college graduates versus non-graduates underscore the ongoing economic inequality in the United States. Despite a slowdown in hiring and job cuts in sectors such as technology and marketing, college-educated households have continued to spend robustly.
Examining Broader Economic Trends
The New York Fed’s analysis contributes to a larger body of research addressing economic inequality in the U.S. A study by the Federal Reserve Bank of Dallas found that the wealthiest fifth of Americans accounted for 54 per cent of earnings from 1990 to 1999, a figure that has since risen to 60 per cent from 2020 to 2025. Additionally, the richest quintile’s share of total spending has also increased, rising from 53 per cent to 57 per cent during the same periods.
Such data suggests a persistent and growing wealth gap in American society, with the affluent reaping the benefits of economic growth while lower-income households continue to struggle.
Why it Matters
The widening chasm between different income groups poses significant challenges for the overall economy and social cohesion. As higher-income households continue to dominate consumer spending, the economic prospects for lower-income individuals become increasingly grim. This disparity not only fuels societal discontent but also raises concerns about long-term economic stability. Addressing these inequalities is crucial to fostering a more balanced and sustainable economic environment for all Americans.
