Stock Market Boom Drives Expansion of High-Income Spending, Low-Income Faces Worsening Employment: A Divergence, Lee Jae-myung's Real Estate 'Permit System'
As the booming stock market has focused spending on homeowners and those on fixed incomes, low-income earners are increasingly confronted with the "high inflation and recession."
The Lee Jae-myung administration has declared an emergency measure to implement a permit system for real estate.
The New York Times reported, "The gap between rich and poor, while hardly new in Chicago and elsewhere in the country, has become even more pronounced in recent months."
"While wealthy Americans have continued to spend freely, fueled by a record-setting stock market, low-income households, struggling with persistent inflation and a weakening labor market, are falling behind," Chicago and New York reporters reported on the 19th.
Analysts at Moody's recently estimated that the top 10% of American households now account for nearly half of all spending, the highest share since the supply-side Reaganomics of the late 1980s.
Moody's analysis found that consumer sentiment rose among high-income earners but steadily declined among other groups.
"This isn't just a story of inequality; it's a macroeconomic story," said Lindsay Owens, executive director of the progressive policy group Groundwork Collaborative. "As the wealthy continue to spend, it increasingly masks economic instability and instability."
The concentrated hardships of low-income communities are largely hidden in macroeconomic data.
The New York Times reported, "Consumer spending continues to outpace inflation, and household debt levels, while rising, remain manageable relative to Americans' incomes. Broader indicators like gross domestic product (GDP) indicate that the economy, while slowing, remains fundamentally sound, surprising many forecasters."
However, this economic resilience increasingly relies on a small number of wealthy households. Economists at the Boston Federal Reserve Bank found in a report that “the recent increase in consumer spending since 2022 has been ‘fueled by the highest-income consumers.’ In contrast, the increase in spending by lower-income consumers has been much weaker.”
“This difference creates two sources of vulnerability,” said Dhiren Patki, director of research at the Boston Fed. “Because so much depends on high-income earners, the economy could suffer if stock prices decline or other shocks cause them to cut back on spending.”
He warned that low-income households are already financially stressed and would be even more vulnerable if the labor market weakens further.
The divide between high- and low-income households, created by the stock market boom, presents a challenge for Fed policymakers.
The New York Times reported that “strong consumer demand could continue to pressure prices, and tariffs are fueling inflation concerns.” “But if the central bank keeps interest rates high to combat inflation, it could also have a negative impact on the labor market.” “A crack may develop,” he said.
The Atlanta Federal Reserve Bank reported on the “12-month moving average of median wage growth in each income quartile.”
Data shows that low-income earners’ incomes rose by 7.3% in 2022, but then declined, recently falling sharply to 3.2%, the lowest. High-income earners’ incomes rose more slowly than low-income earners, peaking at 7.3% in the second half of 2023 and then slowly declining to 5.2%, higher than the 3.2% growth rate for low-income earners.
The data shows that the median high-income and median low-income earners, in the middle, recently recorded 4.5% and 3.8% growth, respectively.
The data is presented as the 12-month moving average of median wage growth in each income quartile.
Regarding the “reversal of fortunes” in wage growth for low-income and high-income earners, the New York Times stated, “Trillions of dollars in government support during the pandemic have been disbursed. The inequity was reduced through various measures, with many companies providing additional pay to employees who could not work from home.
The analysis of the reversal phenomenon states, “When the economy began to reopen, fierce competition for workers led to rapid wage increases, especially in low-wage sectors where demand far exceeded supply. Low-income workers saw their wages rise, but as the labor market subsequently cooled, low-income workers lost much of their influence.”
Data from the Federal Reserve Bank of Atlanta shows that minimum wage workers saw the slowest hourly wage increases, reversing the pandemic trend.
McDonald’s CEO Christopher J. Kempczinski said in a recent earnings call, “Industry-wide visits by low-income consumers were once again down double digits year-over-year. This polarized consumer base is why we remain cautious about the overall near-term health of the American consumer.”
The New York Times reported, “Slowing wage growth, coupled with persistent inflation, is straining the finances of many families, and Americans are increasingly relying on credit to pay their bills.” “These strains haven’t led to widespread defaults, bankruptcies, or foreclosures, but the high debt balances mean that even those who are making payments have little room to borrow more if expenses rise or income falls,” the report said.
Low-income households have already reduced their discretionary spending, leaving them with little cushion, according to spending data from consumer research firm Numerator.
“People are still spending on basics, but they’re cutting back on all the extra things they could have done since the pandemic,” Leo Feler, Numerator’s chief economist, told the New York Times. “If you’ve already trimmed all the fat, the only thing left to trim is essentials, so it’s more precarious.”
The New York Times reported that “economic pressures on low-income families were growing long before Trump took office, but some of the administration’s policies have exacerbated the problem, particularly in certain communities.”
“Farmers have been hit hard by Trump’s trade war with China, and federal workforce cuts have hit Northern Virginia and the government hard,” Feler said. The government shutdown has hit other parts of the United States that rely heavily on foreign workers hard, and now the immigration raids are putting a strain on industries that rely on foreign-born workers and businesses that count them as customers,” the report said.
In Pilsen, a predominantly Hispanic neighborhood on Chicago’s West Side, normally bustling streets have become deserted in recent weeks as immigration enforcement intensifies, and local businesses have reported a decline in customers, the Times reported.
“The U.S. unemployment rate has been rising slowly in recent months but remained relatively low at 4.3% in August,” the Times said. “However, this was the latest data available because the September figure was delayed due to the federal government shutdown.”
“While hiring has slowed sharply in recent months, most companies have retained workers. If these companies begin widespread layoffs, the consumer situation could quickly turn sour,” said Michelle Meyer, chief economist at Mastercard. “Indeed, layoffs are rising, unemployment is rising, and wages are falling in a meaningful way.” "If the economy starts to slow down in a way that's not conducive to the economy, I think the story line will change very quickly, even if household balance sheets are still supported," he told the Times.
Now, for those who have lost their jobs, finding work has become much more difficult.
The Times reported that "nearly 2 million Americans are considered long-term unemployed, the highest number since the pandemic began," and that "unemployment rates have risen sharply for Black workers, recent graduates and other groups who feel the impact of a weakening labor market first."
A conference room near Pilsen, where a job fair hosted by the National Able Network, a Chicago-based workforce development nonprofit, was being held, was packed with attendees: some had jobs but were hoping for better opportunities, others were looking for backup plans amid rumors of layoffs, and others were recent graduates entering the job market for the first time.
Joycelyn Saunders, 40, who met with the Times in Pilsen, Chicago, expected to find a new role relatively quickly when she lost her job at a financial services firm in December 2023, but now she has a bachelor's degree and a bachelor's degree. Unlike in the past, when he had never been out of work for a long time in his years of experience, he now drives for Uber temporarily while looking for work.
He drives for Uber while looking for work, and currently buys little beyond gas and food for his car.
"I'm just making ends meet, and that's it," he told the Times. "I can't save. I can't pay my bills."
When asked by a reporter, "What about the data showing the economy is still good?" he replied, "That might be true for the people who drop me off at a downtown hotel, but it's not true for the people struggling to pay their bills." "It's good for who?" he replied, "Listen to what people are saying and what they're saying about what's happening right now. Middle-class families are also suffering," he said.
Lee Han-joo, chairman of the National Policy Planning Committee, pointed to people's livelihoods and economic recovery as top priorities on June 8th, declaring, "The fastest solution is consumption," and unveiled economic stimulus through consumption stimulation as a key policy.
Chairman Lee, a former head of the Democratic Research Institute and a close associate of President Lee Jae-myung, is the core of the "consumption stimulation strategy" system strategy in "Basic Society."
He stated, "The area that shows the fastest effects in the people's economy is consumption." He added, "While it takes a long time for people's capacity building, education, and training to be reflected in the economy, it doesn't take long for the economy to recover when money is raised and spent, leading to consumption."
He then announced a "consumption stimulation economic stimulus policy." He then provided two rounds of consumption subsidies to the public and implemented his pledge to "raise the KOSPI index to 5000" through stock price increases.
When real estate prices rose first in the stock market, the Lee Jae-myung administration, led by Chief of Staff Kim Yong-beom, designated all of Seoul and 12 cities in Gyeonggi Province as land transaction permit zones. ‘Emergency measures’ were implemented on the 15th.
Just four hours after returning from a visit to the US for tariff negotiations, Director Kim posted on Facebook about the October 15th real estate emergency measures, stating, "Seoul and its metropolitan area are a rare, ultra-dense, compact city even in the world."
He added, "Given the unique nature of this single economic zone, this expansion of the permit system was an inevitable choice."
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