High Earners with Large Stock Portfolios Feel Most Secure

Current economic trends indicate a significant divide in consumer sentiment, particularly among high earners with substantial stock portfolios. Diane Swonk, chief economist at KPMG, suggests that while the overall economy appears stable, not everyone shares this optimism.

Economic Overview

Despite some positive economic indicators, data collection issues are raising concerns. For September, the consumer price index (CPI) rose 0.3% monthly and 3% year-over-year. The core index, which excludes food and energy prices, increased by 0.2%. This represents a slight moderation in inflation but indicates that prices continue to rise.

Inflation Statistics

• September CPI: 0.3% monthly increase
• Year-over-year CPI: 3%
• Core CPI increase: 0.2%
• Energy costs: up 4.1%
• Food prices: moderated

These figures show that inflation, although slowing, is still a concern due to rising energy costs. Swonk highlights that the persistence of high service-sector prices is a significant factor in ongoing inflationary pressures.

Consumer Sentiment Disparity

The perception of the economy is starkly divided across income levels. Affluent households, particularly those earning over $200,000, report feeling secure, largely due to their investments in the stock market. Conversely, many lower- and middle-income consumers report financial stress and are altering their spending habits.

K-Shaped Economy

• High-income households are spending on travel and luxury goods.
• Lower-income consumers face challenges, delaying purchases or switching to discount retailers.

This economic landscape reveals a “K-shaped economy,” where the financial well-being of affluent groups contrasts sharply with those struggling to keep up. Swonk warns that this disparity is reflected in inflation readings that may not accurately capture the struggles faced by the majority.

Data Collection Concerns

Swonk points out that the reliability of inflation data is compromised due to staffing shortages within the Bureau of Labor Statistics. With significant reductions in personnel, more price data is now estimated rather than directly measured. This leads to a lack of precise representation of real-world consumer experience.

Implications for Monetary Policy

For policymakers at the Federal Reserve, these data collection issues pose a significant challenge. Inaccurate inflation readings may lead to misguided decisions regarding interest rate cuts, potentially lowering rates too quickly.

Looking Ahead

As the fourth quarter approaches, Swonk anticipates a “dramatic” slowdown in economic activity. Factors contributing to this decline include consumer stress, rising delinquency rates, and an uncertain retail environment. Surveys indicate that consumers are increasingly prioritizing cash reserves over spending.

This upcoming holiday season may present challenges as financially anxious consumers reassess their spending strategies. Without effective data to inform policy, the risks to economic stability increase, particularly for those most vulnerable in this economic landscape.