The Government Needs Wealthy Consumer Spending To Keep GDP Growing

Companies want to keep their biggest customers happy, so they often provide accommodations to do so. And, as it turns out, the government — if it doesn’t already do so — probably wishes it did because the wealthiest households have become an utterly critical part of the economy through wealthy consumer spending.

Wealthy Consumer Spending And GDP

Gross domestic product — the total market value of all goods and services produced in a country — is, at least in the U.S., increasingly dependent on consumer spending. Data from the Bureau of Economic Advisors shows that personal consumption expenditures, another name for consumer spending, is currently 69.8% of GDP.

It wasn’t always this way. Other parts of the economy were more prominent aspects of GDP in the past. Below is a graph from the Federal Reserve Bank of St. Louis using data from the BEA to show the percentage of GDP that consumer spending represents.

The numbers on the vertical axis are decimal representations of percentages. To understand the percentage, take the number on the left and shift the decimal point to places to the right: 0.690 means 69.0%.

However, numbers that seem statistical don’t necessarily mean much if you don’t know how the results are distributed. Here is where Moody’s Analytics comes in. The firm recently analyzed data from the Federal Reserve and found some interesting facts that The Wall Street Journal subsequently reported.

Wealthy consumer spending is half of all consumer spending.

First, the top 10% of earners are those households that make at least $250,000 a year and go up from there. They’ve been spending a lot, as in almost half (49.7%) of all consumer spending. Thirty years ago, the percentage was about 36%.

The high earners increased their spending by 12% between September 2023 and September 2024 at a much faster rate than inflation. Over the last four years, prices were up by 21%. The top 10% of households upped their spending by 58%. The bottom 80% of households increased their spending by 25%, and they had far fewer resources to manage the change.

Wealthy consumer spending has never been better.

“The finances of the well-to-do have never been better, their spending never stronger and the economy never more dependent on that group,” Mark Zandi, chief economist at Moody’s Analytics, told the Journal.

Those at the top tend to be older, better educated, and the owners of homes and stocks that have boosted their net worth. They can spend more than the 90% of people who are below them.

Many in the country had some savings from government stimulus programs during the Covid-19 pandemic to keep things steady — the total was an estimated $2.6 trillion. Then inflation set in, prices jumped, and most people burned through that money.

The value of assets for the bottom 80% grew a total of $14 trillion because government policies created a lot of money. The top 20%, already possessing strong incomes, put money into assets that grew in value. They collectively saw their net worth jump by $35 trillion, or 2.5 times as much as the big majority.

The arrangement shows one major risk of income inequality. The status of the economy largely rests on a small sliver of the population. The World Economic Forum has calculated U.S. income distribution and found that 10% of households have incomes of $200,000 or more. In other words, 34.7% of GDP depends on less than 10% of households. If anything happens to that group’s, whether ill-fortune or whim, the entire economy could suffer a major blow.

All this puts actions by government officials into a different light. Yes, the wealthy have an impact on political spending and get their interests well represented in Congress. But there is a new undercurrent. No politician wants to preside over a time when the economy falls. If they don’t keep the wealthy consumer spending flowing freely, it could negatively affect GDP and reelection chances.