The American labor market, once a symbol of stability and opportunity, is showing signs of cooling, disproportionately affecting the highest income bracket. Bank of America’s recent data reveals a surprising trend, spotlighting challenges for households earning $125,000 or more annually.
In July, this group witnessed an alarming 60% surge in unemployment benefit recipients compared to the prior year, as per BofA’s data. Though the overall unemployment rate remains historically low, the sharp rise in benefits among higher-income households raises concerns.
In contrast, households earning $50,000 to $125,000 annually experienced a 40% increase, while those earning under $50,000 saw a rise of just over 20%. This disparity underscores the intricate dynamics of the labor market.
Further analysis exposes the slowest job growth in the highest-wage industries, a paradoxical scenario indicated by BofA Institute’s in-depth examination of Bureau of Labor Statistics (BLS) data. This suggests that despite economic recovery, sectors with high earnings are grappling with sluggish job creation.
Adding complexity, individuals earning over $125,000 annually face crawling wage growth. Their incomes barely inch upward, barely keeping pace with inflation. Conversely, those earning under $50,000 enjoy average annual wage hikes of 3%, while the $50,000 to $125,000 bracket sees a 2% increase, according to BofA’s insights.
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A Closer Look at Consumer Spending
Surprisingly, despite a cooling labor market, higher-income earners continue to outspend their counterparts. July marked the first time this year that this group surpassed others in monthly spending. This resilience stems from excess savings that sustain consumer spending, bolstering the American economy amid job growth uncertainty.
Consumer spending drives the nation’s Gross Domestic Product (GDP), consistently outpacing expectations and prompting reassessment of recession predictions. BofA economist Michael Gapen notes that while spending might slow and growth dip, the worst of the economic slowdown may be over, partially due to a less restrictive policy rate.
However, as 2024 approaches, slowing consumer spending raises concerns. Contributing factors include dwindling bank balances and the absence of pandemic stimulus. Still, BofA Institute’s data provides hope—median deposit balances in customer accounts remain 30% higher in July 2023 than the 2019 average.
BofA’s meticulous analysis projects these balances to stay above 2019 levels until at least September 2024, signifying remarkable economic resilience.
Read Also: More US Rate Hikes Expected as Federal Reserve Aims to Tackle Inflation
Source: Yahoo finance
