The consumer sector has held up in recent months, with consumer spending rising 0.2 in January from December.
But it’s a tale of two countries: the wealthy, infused with stock market wealth and improving home values, are keeping the sector afloat, while the non-wealthy, struggling with a payroll tax increase on top of a bleak job market and higher gas prices, are dragging it down.
"People in the top half of the income distribution are doing just fine. They're spending enough to keep the economy moving," Mark Zandi, chief economist at Moody's Analytics, tells The Wall Street Journal.
Editor's Note: Economist Warns: ‘Money From Heaven a Path to Hell.’ See Evidence.
"But the lower half is having a difficult time keeping their heads above water."
The impact of the wealthy is stronger than the impact of the non-wealthy. That’s because the top 20 percent of the country in terms of income do about 38 percent of the spending, which equals nearly as much as the entire bottom 60 percent of the income spectrum, according to Labor Department data cited by The Journal.
But it’s unclear if the wealthy can keep things going on their own, The Journal explains. Already economic growth has slowed to just 0.1 percent in the fourth quarter. And the sequester could tip the economy in the opposite direction.
Ryan Sweet, another economist at Moody’s, has a mixed view for consumer spending going forward. “It’s going to be touch and go for the consumer for the next few months,” he tells Bloomberg.
“The consumer is going to be able to support the recovery, but they’re not going to be able to take it” higher, he says.
The expiration of the payroll-tax holiday was “an arrow aimed straight at the heart of their [lower-end retailers] customer base,” Ian Shepherdson, chief economist at Pantheon Macroeconomic Advisors, tells The Journal.
The full impact of the payroll tax hike will continue through the spring. “When the U.S. consumer suffers a cash-flow shock, there is typically a delay of two to five months before it trickles through into spending,” Shepherdson says.
Editor's Note: Economist Warns: ‘Money From Heaven a Path to Hell.’ See Evidence.
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