Economy sways as middle class spending falls

The surprising resilience ofthe U.S. economy this year ismasking underlying weakness among lowand middle-income households, as higher-income Americans continue to drive growth.

- BY CATARINA SARAIVA AND JAEWON KANG

ROBERT NICKELSBERG Getty Images

GROCERY SHOPPERS at a supermarket Tuesday in South Burlington, Vt. Concerns about inflation persist.

This dichotomy between the haves and have-nots isn’t new, but the economic strain is now bleeding from the lowest earners to the middle class, creating an even starker divide that some economists say makes the economy more susceptible toa downturn.

The richest 10% of households are fueling nearly half oftotal spending, thankstoa stock market surge that has boosted wealth and, in turn, propelled economic output this year. Meanwhile, lower-income families are pulling back in the face of tight budgets, still-high living costs and a raft of corporate layoffs.

Executives at companies like Chipotle Mexican Grill Inc., Hilton Worldwide Holdings Inc. and Ethan Allen Interiors Inc. have cited the trend in recent earnings calls, and Federal Reserve Chair Jerome Powell said officials are carefully watching signs of a bifurcated economy after the central bank lowered interest rates last week.

“T feel like our economy today resembles a top-heavy Jenga tower,” said Peter Atwater, the economist who, in 2020, popularized the idea of a “K-shaped” economy, where the well off are on an upward track and the less fortunate experience further declines.

In the popular Jenga game, wooden blocks are stacked and then carefully removed by players until the tower becomes too fragile and collapses. The reference is apt as the stock market surges to fresh highs even as hiring stalls and layoffs creep up.