In a recent poll done by Harris, 57% of Americans believe we are in a recession. The US is not technically in recession, which is defined as two quarters of negative growth. And two weeks ago, the US posted far stronger growth numbers than expected. But in a recent development, a massive recession indicator was activated for the first time in a decade this week. Recent economic data tells us that the top 10% of earners make up around fifty percent of consumer spending. While high-income households tend to be more resilient during periods of inflation and higher interest rates, this imbalance makes overall consumption increasingly fragile. Middle and lower income households, which historically powered demand, have less discretionary income and are more sensitive to job losses, rising prices, and credit tightening. As a result, the economy becomes more dependent on the financial health and confidence of a relatively small group of consumers.
This indicator has been activated in multiple recent recessions right before and sometimes during economic downtrends. During the 2001 Dot com bubble, spending from the top ten percent shot up around 12 and a half percent. In this past year it has jumped a similar 9 points and spending from the bottom 80% has hit a multidecade low.
History shows that when consumer spending becomes this concentrated, downturns often follow. The current divergence between top earners and the rest of the population suggests the economy is far weaker beneath the surface than headline numbers imply. Do you believe a recession is coming? How can the Trump administration and the Fed both increase spending by the bottom 80% and curb spending by the top ten percent?