MacroVisor co-founder Ayesha Tariq analyzes the state of U.S. household liquidity on Making Money.
America’s wealthiest households are accounting for a growing share of consumer spending as market-driven gains in their net worth fuel a wealth effect, a new analysis by Moody’s Analytics finds.
The report authored by Moody’s Analytics chief economist Mark Zandi found that the top 10% of U.S. households in terms of earnings, defined as making about $250,000 or higher, account for 49.7% of consumer spending – a record since at least 1989, according to the analysis.
That figure marks a significant rise over the past three decades, when the highest 10% of income earners accounted for about 36% of consumer spending, Moody’s Analytics found.
Zandi’s analysis suggests that the growth in U.S. gross domestic product (GDP) is heavily reliant on the spending habits of the highest-earning Americans. He estimated that spending by the top 10% of earners contributed at least one-third of GDP.
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Moody’s Analytics found that the highest 10% of earners account for about half of U.S. consumer spending. (Mark Kauzlarich/Bloomberg via Getty Images / Getty Images)
These findings come as less affluent households continue to struggle with the effects of persistent inflation, as well as high interest rates that have hit the housing market.
From Sept. 2023 to Sept. 2024, when the most recent data used in the report was sourced, the highest 10% of earners increased their spending 12% in that period, while spending by both lower- and middle-income earners declined in that period.
“Wealthier households are financially more secure and thus more able and willing to spend their income,” Zandi wrote. “That is, they save less than they would otherwise. This is consistent with our estimates of consumer spending by income group, which shows the well-to-do in the top quintile of the income distribution powering the recent growth in spending.”
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Middle and lower income Americans’ share of consumer spending declined from 2023 to 2024, the report showed. (Allen J. Schaben / Los Angeles Times via Getty Images) / Getty Images)
Zandi explained that the wealth effect is subject to considerable variations based on whether asset prices are rising or falling, which assets are appreciating or depreciating in value, as well as the volatility in price changes.
“A good econometrically based rule of thumb is that a sustained and broad-based appreciation in asset prices like we have been enjoying is consistent with a wealth effect of two cents,” he wrote. “That is, for every $1 increase in net worth, consumer spending ultimately increases by two cents.”
“This seems insignificant at first blush, but do the arithmetic. Last year, the wealth effect added a full percentage point to consumer spending growth and over 0.7% to GDP growth,” Zandi wrote. “An outsize approximately one-fourth of the growth in GDP last year was due to greater household wealth.”
Rising stock market valuations and higher home prices contributed to the wealth effect found in the Moody’s Analytics report. (Photographer: Michael Nagle/Bloomberg via Getty Images / Getty Images)
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Zandi warned that the wealth effect could be at risk of reversing, writing that “given the stretched valuations and the heightened economic policy uncertainty, the risk of a significant correction in asset markets is uncomfortably high and rising, with clear implications for the economy.”
