Only the Wealthy Spending More
Today, a poll from Gallup shows where the uptick in consumer spending is coming from: the wealthy, and the wealthy only. Americans earning more than $90,000 a year spent an average of $145 a day in May, a third more than in April and the largest amount since November 2008, the month after Lehman Bros. collapsed and the worst of the financial crisis hit. But middle- and lower-income Americans kept spending the same amount — around $58 a day. People earning more than $90,000 a year — about 7.75 percent of individuals in America — made up the entirety of the increase in consumer spending.
Gallup’s Dennis Jacobe surmises that the reason for the increase is that upper-income people had the cash to spend before, but decided to save out of fear of another downturn, a fear that is now receding:
May’s spending illustrates that many upper-income consumers have the disposable income to increase their daily spending if they so desire. In a behavioral economics context, these consumers seemed to be holding back on spending prior to May in response to the length and depth of the recession, the financial crisis, and a general feeling of economic uncertainty.
In May, this seemed to change. It could be that many upper-income consumers are experiencing “frugality fatigue.” That is, they are simply tired of cutting back and want to go back to spending — maybe not as freely as they did prior to the recession, but at higher levels than they did last year, when frugality was commonplace. They may also be spending more freely because as recently as a month ago, many economic observers were talking about the financial crisis’ being over and a sharp economic upturn taking place. Or, they may simply have decided that it is finally time to take a long-delayed vacation.
A sharp increase in upper-income Americans’ spending is terrific news for the U.S. economy. These Americans generally have the wherewithal to spend, and when they do so, they generate consumer demand across the economy. In turn, this produces what the U.S. economy needs the most: a sharp and sustained increase in private sector jobs.