Affluent consumers sustain economic momentum
A growing divide in American consumer behavior is becoming more evident: a small, affluent fraction of the population is driving most of the country’s spending growth. While millions of households grapple with inflation, the spending habits of the wealthiest continue to buoy the U.S. economy and, by extension, Wall Street.
Evidence of this trend can be found in the booming luxury credit card market. American Express, for example, has just unveiled a revamped version of its Platinum card, increasing its annual fee to $895. The upgrade offers enhanced travel and dining perks, catering to a clientele for whom exclusive benefits are worth the premium.
Credit cards become status symbols
Amex’s update is the most significant since 2021 and comes amid fierce competition from other card issuers. Just months ago, JPMorgan Chase raised the annual fee on its Chase Sapphire Reserve card to $795, also sweetening its benefits. These changes are not driven by a need to appeal to the average consumer but by a race to capture high-spending customers who regularly charge tens of thousands of dollars.
For American Express, the economics make sense. Even though some users extract as much as $3,500 in value from card rewards, the company profits from the many who don’t utilize every perk. Swipe fees and high annual fees ensure revenue remains strong.
Economic split grows wider
This trend highlights a deeper issue in the American economy: consumption is increasingly polarized. Research shows that the top 10% of earners are responsible for nearly half of all consumer spending. This bifurcation is occurring alongside rising unemployment and economic uncertainty for the middle and lower classes.
Despite these warning signs, easy monetary policy may extend this cycle. With interest rates falling and the Federal Reserve signaling further cuts, borrowing will become cheaper. That may embolden more luxury spending, even as many Americans struggle to maintain basic consumption levels.
The Fed’s view on skewed spending
Federal Reserve Chair Jerome Powell addressed this imbalance following the central bank’s latest rate cut. Acknowledging that wealthier households are disproportionately driving consumption, he remarked, “There’s a lot of anecdotal evidence to suggest that.” Still, he emphasized that growth is growth, regardless of who’s spending.
As Powell noted, “It’s spending.” And for now, it’s the elite’s spending that is keeping the economy in motion.
