Wealthy Shoppers Propel US Retail Spending Despite High Costs

Wealthy shoppers have propelled retail spending in the United States, according to a recent Federal Reserve analysis, despite the price of goods remaining high.
Even though inflation has cooled, many lower-income Americans are not feeling it, with necessities like rent and groceries remaining at high costs. This group of consumers has, in turn, cut their discretionary spending, which includes retail shopping and restaurant meals.
Despite this, overall retail spending has continued to rise because wealthier shoppers have increased their discretionary spending.
The U.S. Department of Commerce reported Thursday that U.S. retail sales rose 0.4 percent, and restaurant sales rose 1 percent from August to September.
Before the COVID-19 pandemic, which caused brutal economic losses worldwide, retail spending was increasing among all income groups at about the same pace, according to the Fed’s report on October 11. But roughly three years ago, upper- and middle-income consumers started spending much faster than lower-income consumers.
Since the COVID-19 pandemic, high-income households have experienced high home equity and stock market wealth gains.
Houses have become more expensive due to high demand and an unusually low real estate supply. The home equity of the wealthiest 10 percent of Americans increased 70 percent to $17.6 trillion from the first quarter of 2020 through the second quarter of 2024, according to the Fed’s data.
Meanwhile, the stock market has seen record highs this year and with around 80 percent of stock market value owned by the wealthiest 10 percent, they have much to gain from a soaring stock market. The wealthiest 10 percent’s stock and mutual fund wealth increased 86 percent to just under $37 trillion in the past four years.
In September, the Fed lowered its benchmark interest rate, which was at a 23-year high, by a half-percentage point to between 4.75 and 5 percent.
The Fed raised its benchmark rate, the federal funds rate, 11 times in 2022 and 2023 to curb high inflation. September’s interest rate cut was the first in four years.
The federal funds rate is the target interest rate at which commercial banks borrow and lend their extra reserves to one another overnight. If the federal funds rate continues to decrease, the cost of consumer borrowing—including mortgages, auto loans, and credit cards—should decrease over time, easing the burden of the middle- and lower-income earners’ necessary spending.
This article includes reporting from The Associated Press.