As discussed in my last blog, We're the wealthiest we've ever been... but who is 'we'?, Americans are the wealthiest they have ever been as a result of a surging stock market. But this new wealth does not drive consumer spending much, since the wealth is unevenly distributed. It turns out that 94% of stocks are owned by America’s wealthiest 10% of citizens. This matters because spending across income groups is uneven, as the middle class spends a much bigger percentage of their overall income than the wealthy.
The main driver of the U.S. economy is consumption. Therefore, an important question to ask is, going forward, what would cause the average American to spend more? Well, there are two options - one is for people to borrow more (which is not ideal) and the other is for them to see their incomes rise. And there lies the rub, U.S. wages haven’t risen much since the 1990s once you adjust for inflation.
An easier way to look at this is to split the economy into three main building blocks: