Surprise! Inflation Finally Comes For The Higher Income Brackets
Who Seriously Did Not See This Coming?
To hear corporate media tell it, the rich saved the US economy from a post-COVID recession.
Seriously. Bloomberg actually said that.
The upper middle class powered a spending boom that kept the US out of recession, but there are increasing signs of a slowdown.
Bloomberg went on to rationalize that conclusion with some obligatory hand-wringing about how well upscale retailers are going to fare during this holiday shopping season now that higher income brackets are discovering frugality.
Richer Americans are curtailing their spending ahead of Black Friday, a worrisome sign for an economy that has so far depended on the US consumer to stave off a recession.
In the three months ahead of the all-important holiday shopping season, a group of retailers that cater to the upper middle class — including Apple, Coach and Nordstrom — saw its biggest sales drop in two years, according to an exclusive analysis of Bloomberg Second Measure data. The malaise also hit top-performing malls in wealthier areas, even as overall retail-sales figures march higher.
Despite record interest rates and soaring inflation, the upper middle class “had been driving a lot of the stronger-than-expected spending,” says Kayla Bruun, a senior economist for Morning Consult, a survey research firm. Now, people with at least $100,000 in household income are starting to become more frugal, she says.
It is a marvel of how much lacking in self-awareness the Wall Street media mouthpieces have to be to conclude that a recession only happens when the rich feel the pinch. It is an even greater marvel of ignorance that these same Wall Street media mouthpieces have not been following the data all along, and so are quite surprised to find thrift and frugality penetrating the upper echelons of the economic strata.
Yet here we are.
We should note straight away that the economic data has been signaling price deflation for most physical goods for quite some time, and last month’s Producer Price Index confirmed that.
Last month’s Consumer Price Index data also confirmed that weakening energy demand was a driving force behind the easing of consumer price inflation throughout the economy.
It surely is no surprise, therefore, that inflation concerns beyond energy prices continue to be factor in consumer sentiment even for more affluent consumers—although, to hear Fortune tell it, sentiments are made worse for more affluent consumers because lower income brackets have presumably seen their wages rise more.
Despite strong economic data, survey after survey has shown six-figure-earners down on the economy and struggling to keep up amidst years of high inflation and rising interest rates. As lower income workers benefit from larger income gains, wealthier Americans feel, comparably, that they are worse off.
That’s right, the rich think the poor are somehow doing better than before and they apparently feel a twinge of jealousy or something!
Part of wealthier Americans’ frustration is that $100,000 just doesn’t go as far as it once did, thanks to inflation.
But after a few paychecks, the novelty wore off, and Miriam, who asked to be referred to by her first name only to protect her privacy, says her lifestyle did not change in any significant way. After taxes and other deductions, she takes home around $2,500 per paycheck, enough to cover her bills in San Francisco and contribute to her 401(k).
“Getting a $100,000 salary was like getting a Fulbright scholarship. This unattainable, life-changing thing,” she tells Fortune. “And I materially feel different than when I made $70,000. But somehow you just sort of settle in, and that becomes normal. Within the first two months I was like, wait what? I thought there’d be a huge pile of money in my checking account.”
The reality of the post-COVID era, of course, has been all along that incomes have not kept pace with prices, and the middle swath of net worth percentile brackets have not always fared as well as the media might lead one to believe.
It is important also to realize that for all but the lowest and highest net worth wealth brackets, real disposable personal income has fallen.
No matter how much money you actually take home, if that amount is less now than it was right after the Pandemic Panic Recession, you are demonstrably worse off than before.
If we index the income breakdown by share of aggregate net worth to the end of the Pandemic Panic Recession, we get a clearer picture of how inflation’s price distortions have impacted the entire economy.
When corporate media or the experts in Washington DC prattle on about “rising incomes”, understand that, for just about every economic category of American you care to name, incomes have not been rising.
What has been rising, of course, are expenditures. Everyone, even those who earn more, have seen their consumption expenditures rise even as their incomes fall.
Obviously, when folks spend more and take home less, that’s a problem. That is the problem people across the economic strata in the US are facing today (how good of corporate media to notice).
When we compare the growth in personal income against the growth in personal expenditures since the end of the Pandemic Panic Recession, the dilemma that is haunting this holiday shopping season becomes immediately apparent.
While the graph is a bit busy, the fact that the red lines (personal expenditures) are all rising farther than the green lines (personal income) is the meat and potatoes of the economic problem: at every income level, what people are earning has not kept pace with what people are spending. Even among the wealthiest Americans, incomes have risen proportionally less than spending.
For people in the 99.9th to 100th percentile of aggregate net worth in this country, incomes rose 20.9% since the Pandemic Panic Recession while expenditures rose 49.2%.
For people in the 99th to 99.9th percentile of aggregate net worth, incomes rose 16.5% while expenditures rose 43.8%.
For people in the 90th to 99th percentile of aggregate net worth, incomes rose 10.4% while expenditures rose 36.2%.
For people in the 50th to 90th percentile, incomes rose 10.7% while expenditures rose 36.5%.
For people in the 1st to 50th percentile, incomes rose 35% while expenditures rose 66.5%.
For all economic strata, people are spending more today relative to their earnings than at the end of the Pandemic Panic Recession. For all economic strata, that gap has not been getting narrower with time, but larger.
What corporate media is finally noticing is that even for the higher economic strata, that gap is reaching the pain threshold where consumption patterns alter, with thrift and frugality taking precedence over consumption. To the corporate media, when this shift happens among wealthier people, that’s when recession hits.
Yet this gap has existed all along. More importantly, this is a gap between relative income growth and relative expenditures growth. This is merely a metric of how much income growth has lagged since the end of the Pandemic Panic Recession. This does not address income disparities or inequities that existed prior to the recession.
Further, this is merely examining the gap between aggregate income and aggregate spending. This does not measure rises in specific key spending areas such as food, energy, or shelter against rises in income.
Yet it is this gap between income growth and expenditures growth—and the differing sizes for that gap based on economic strata—that is the fundamental disconnect between both the “experts” and their media mouthpieces and the realities people are facing today. This data has always been available for analysis and interrogation, and it has always shown in simple terms the growing imbalances within the US economy. This data has always shown that the pain thresholds where consumption patterns shift were reached sooner for the lower economic strata—which should almost be intuitively understood, simply because of the nature of wealth.
This gap is the most telling aspect of how inflation has distorted the US economy and steadily limited people’s consumption options, until finally even the wealthiest out there are feeling the need to make spending changes. That inflation is finally impacting even the wealthiest Americans was always inevitable so long as the prevailing trends remained as they have. Easing consumer price inflation going forward does not eliminate the distortions from consumer price inflation already captured. Without actual price deflation, the percent price increase recorded last month, or last quarter, is still present; goods and services are still at least that much more expensive now than before.
For corporate media, that the gap between income growth and expenditures growth is finally hitting the wealthier Americans means a recession is nigh. For everyone else, that this gap has been hitting everyone else means the recession is well underway, and getting worse rather than better.