Bank of America finds the spending gap between income groups is widening in the US
The Big Money Show hosts discuss a report that shows Gen Z is cutting back on holiday gifts, preferring experiences and personal presence over material things.
The US is showing signs of “K-shaped”. with spending among low-income consumers showing less growth compared to their high-income counterparts, a new analysis from the Bank of America Institute shows.
Internal data detailed in the report showed that in November the three-month average of total card usage showed a K-shaped pattern as the holiday season began in earnest.
“In terms of credit and debit card spending, we’ve seen a split open since the spring, early summer in our data,” David Tinsley, an economist at the Bank of America Institute told FOX Business in an interview.
“Right now, high-income households – that’s the top third of households by income – their spending growth is about 2.6% year-on-year, buthouseholds with incomeit’s only 0.6%,” Tinsley noted. “That’s a huge gap.”
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A Bank of America Institute report showed signs of a “K-shaped” pattern in consumer spending among low-income Americans compared to their high-income peers. (David Paul Morris/Bloomberg via Getty Images/Getty Images)
“I think there’s kind of two legs to that story. The other is the labor market: if you look at the wages going into people’s bank accounts Bank of America data, we see top-wage growth of about 4%, and low-wage growth of about 1.4%, and that’s very close to the biggest gap of about 10 years in the data,” he explained.
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“Another leg in a sense wealth, equity market gains,” which Tinsley noted is typically concentrated in middle- and upper-income households that typically own those stocks.
“The strength of the market over the past two or three years has tended to support spending by high-income households,” he added.
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Spending growth among high-income Americans has been boosted by wealth and stock market outcomes, the report said. (Eduardo Munoz/Reuters/Reuters)
Labor market trends are likely the main driver of the K-shaped dynamics seen in consumers, the report said.
After-tax income and wage growth among low-income households has continued to lag that of high-income households, while the decline in low-income wage growth that prevailed in the spring and summer appeared to slow in November, the Bank of America Institute reported.
A K-shaped pattern affecting consumers across income groups was also seen in the company’s data covering holiday spending.
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The report also found that Americans have been more price sensitive this holiday season. (Kamil Krzaczynski/AFP via Getty Images/Getty Images)
The Bank of America Institute found that while low-income families are growing relatively healthy, they continue to lag behind middle- and high-income families, and the report noted that the low-income group was particularly vulnerable. vacation money growth in the week leading up to Cyber Monday.
The report also found that consumers remained price sensitive during the holiday season and that spending growth appeared to be driven by more transactions, with average spending per transaction little changed. Because online holiday shoppingtransactions increased by about 10% while the amount spent increased by about 9%.
“It seems that people are doing a good job of avoiding or reducing price increases on things like taxes. What we are seeing is that the volume of goods they buy in terms of holiday spending is almost equal to the dollars they spend,” he explained.
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“They seem to be using the Internet well, they’re very price sensitive. They’re getting the most out of their money,” Tinsley added.
