Wealthy Americans are Getting Hit Hardest by the Economy Slowing Down

(Yahoo!Finance) - Wealthier Americans aren't spending — or earning—like they used to.

Data from Bank of America Institute out Wednesday reveals households making more than $125,000 have seen wage growth slow down faster than lower-income households while spending trends have followed a similar pattern. Higher-income households' discretionary spending on Bank of America credit and debit cards has slipped below lower- and middle-income groups since the start of this year.

The data is notable, Bank of America argues, because the highest-earning 40% of households by income accounts for more than 60% of overall consumer spending. Its calculation of wages includes bonuses, which tend to fluctuate more than base pay.

“A labor market slowdown driven by the higher end of the income scale could have an outsized impact on the overall economy,” BofA wrote in a note to clients. “As of now, the labor market is beginning to soften from a very buoyant initial position, so it will likely take quite some time before the full impact on consumer spending comes through.”

While unemployment remains at historically low levels, Bank of America says unemployment benefit claims are rising the fastest in the highest income group. Higher income houses filing for unemployment benefits rose 40% in April from the same month a year prior — more than five times the rate of the lower income bracket, according to BofA internal data on direct deposits into customer accounts in 30 states.

So while the April jobs report showed an overall resilient labor market coming in hotter-than-expected for the 13th straight month, BofA’s data shows the cracks are occurring in the highest income bracket, where headlines of layoffs have littered the tech industry for months.

Bank of America Institute data shows households making more than $125,000 are seeing wage growth decline faster than any other income cohort.

Overall, total card spend declined on a yearly basis in April for the first time since February 2021, per Bank of America data. Within retail, luxury fashion is one the biggest laggards, falling 15% compared to 2022. In services, lodging fell more than 3% compared to last year while spending at airlines dropped 4.5% compared to the month prior.

While savings and checking balances at Bank of America still remain over 40% higher than pre-pandemic levels, the slowing trends in spending fit in line with other economic data from pervious months and commentary from quarterly earnings calls.

Retail sales fell double what analysts had predicted in March, as some economists pointed out the picture was only growing worse.

“Monthly data suggest that consumer spending has lost momentum over the past few months,” Jay Bryson Wells Fargo Chief Economist said in a note on April 27. “Moreover, consumers are relying increasingly on credit and stockpiled cash to finance their purchases. These factors are not sustainable, in our view.”

“We continue to forecast that the U.S. economy slip into recession, which we expect will be of moderate severity, in the second half of the year.”

'A cautious consumer'

Some of America’s largest consumer brands flashed similar warning signals during their earnings calls. Amazon (AMZN) warned of “cautious spending.” 3M Company (MMM) sees weakness in "consumer-facing markets." And Procter & Gamble (PG) said its “more careful” consumers are conserving sheets of paper towels.

The gloomy outlooks come as several big box retailers still haven’t reported earnings. Home Depot (HD), Walmart (WMT) and Target (TGT) are all expected to report first-quarter earnings next week.

And while earnings have widely beat the Street’s muted first quarter expectations, investors will closely watch what each company says about the remaining nine months of 2023.

“The earnings season in retailers is going to provide the most opportunity, in my opinion, for the individual investor in terms of where to see what comes next, and the most important part are going to be those CEO comments.,” JJ Kinahan, CEO of IG North America, told Yahoo Finance Live on Monday.

By Josh Schafer · Reporter


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