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An increasing number of company executives and economists have recently pointed to a widening gap in the economy, where the wealthy drive most economic activity and low-income Americans continue to struggle financially.
A potential stock market downturn could affect wealthier households and trigger a broader economic slowdown, Mark Zandi, chief economist at Moody’s Analytics, recently told Bloomberg.
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Zandi said high-income households are the “last pillars” of strength in the economy, and a stock market downturn would “knock the wind out of” them, raising the risk of a recession, according to Bloomberg.
Economy ‘Powered By The Well-To-Do’
The top 20% of earners in the U.S account for almost two-thirds of all spending, a record, Bloomberg said, citing data from Moody’s. Before the pandemic, the bottom 80% made up nearly 42% of spending, but that share has fallen to 37%.
The U.S. economy could face a “big problem” if wealthy Americans become cautious in spending, Zandi said in a September post on X.
“The 20% of households that make more have done much better, and those in the top 3.3% of the distribution have done much, much, much better,” Zandi wrote. “The U.S. economy is being largely powered by the well-to-do. As long as they keep spending, the economy should avoid recession.”
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Growing worries about an AI bubble and high tech stock valuations are raising concerns about a potential stock market downturn, which could affect wealthy households in the U.S., who hold the bulk of market investments.
Importance of Soaring AI Stocks
The richest 20% of U.S. households own nearly 93% of all stocks, CNBC reported, citing data from New York University economics professor Edward Wolff.
“It’s hard to overstate the significance of the soaring stock prices of artificial intelligence companies to the economy,” Zandi said in a post on X earlier this month. “Spending by well-off Americans, driven by their surging stock portfolios, is the single most significant driver of growth.”
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