"For high-income consumers ("the haves"): Strong spending power: Wealthy consumers are buoyed by high asset prices in stocks and real estate. The market melt-up, fueled by investments in areas like artificial intelligence, has increased their net worth. Insulation from interest rates: These individuals are less affected by higher interest rates, allowing them to continue spending on both luxury items and daily goods. Confidence in the economy: Their financial confidence remains strong, leading to continued investment and consumption."
"For lower- and middle-income consumers ("the have-nots"): Erosion of purchasing power: Many in this group have exhausted their pandemic-era savings. They are now hit hardest by high inflation, especially on essential expenses like food, housing, and insurance. Shift in spending habits: This is leading to a dramatic shift in spending, with these consumers often prioritizing needs over wants. For example, some may skip meals or choose to eat at home, as highlighted by a McDonald's CEO who noted a significant drop in traffic from lower-income customers."
A K-shaped divergence has produced widening financial outcomes across income levels. High earners benefit from rising asset prices in stocks and real estate and gains from investments in technologies like artificial intelligence, sustaining strong spending and investment. These consumers are less affected by higher interest rates and maintain economic confidence. Lower- and middle-income households have depleted pandemic savings, face high inflation on essentials such as food, housing, and insurance, and see wage growth fail to keep up with costs. These pressures force spending shifts toward necessities, reduce discretionary consumption, and push some consumers to cut basic expenditures.
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