Wealthy Americans are cutting back — and it could push the US closer to a recession

  • Wealthy Americans are cutting back on luxury items and shopping at discount stores more than usual.
  • Households earning more than $125,000 slashed overall spending throughout the summer, Bank of America said.
  • The group’s spending is “crucial” to the economy and a longer drop could pose a risk, the bank added

Inflation is catching up to the Americans most likely to brush it aside.

The spending environment has shifted immensely over the past few months. Sky-high inflation has wiped out most Americans’ pent-up savings, and slowing economic growth has amplified fears of an impending recession. It’s no wonder economic moods remain bleak.

Yet it’s the wealthiest households that are cutting back the most. Americans earning more than $125,000 slashed their discretionary spending in each of May, June, and July, according to credit and debit card data from Bank of America. Discretionary spending counts spending on anything besides groceries, gas, and clothing.



Bank of America


The pullback has emerged in several pockets of the economy. Households earning more than $125,000 have scaled back their spending on airline travel faster than Americans earning less than $50,000. Wealthy Americans’ spending on hotels has similarly dipped in recent months.

The slump has even showed up in the prices of luxury goods. Rolex resale prices are down from their March peak, according to data from online marketplace Chrono24, signaling demand for the long-sought-after timepieces is easing up.

And while wealthier Americans are moving away from pricey watches, they’re spending more at retail chains known for lower prices. Dollar General saw more high-income households shopping at its locations in the second quarter, CEO Todd Vasos said in an August earnings call, adding the uptick “reflects more consumers choosing Dollar General as they seek value.” 



Chrono24


Walmart CEO Doug McMillon similarly said demand from wealthier households swung higher in the second quarter as Americans looked to counter inflation.

“People are really price-focused now, regardless of income level,” McMillon said on CNBC. “And the longer this lasts, the more that’s going to be the case.”

Cheaper Rolexes and growing demand at dollar stores might not seem like an economic catastrophe, but high-income households’ waning demand does pose a risk to the recovery. Spending from both low- and high-income Americans is “crucial” to keeping the economy healthy, Bank of America economist Anna Zhou said in an August 24 note. The top 20% of earners counted for nearly 40% of all consumer spending in 2020, meaning a longer pullback could remove one of the economy’s most powerful drivers.

The US isn’t in the danger zone just yet. Lower- and middle-income households are still spending at a steady pace. Households earning less than $20,000 lifted their overall spending in June and July. Though those earning between $20,000 and $50,000 cut spending in July, the decline was modest and followed two months of growth.

Higher-income Americans are also likely to up their spending if inflation continues to cool. Households earning more than $125,000 “remain well-positioned with elevated savings, which could buffer the inflationary environment,” Zhou said. Tumbling gas and vehicle prices hint that inflation slowed again through August, potentially setting the group up to revive their spending.

Yet with inflation running at a year-over-year pace of 8.5% through July, it’ll be a while before price growth returns to healthy levels. In the meantime, soaring costs and slowing economic growth are still weighing on households, even those with the best financial protection.

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