|
The US economy is expected to maintain its growth momentum through the remainder of 2026, supported by resilient consumer spending and an improving labour market. However, the recovery is becoming increasingly uneven, with higher-income households continuing to drive economic activity while lower-income consumers grapple with rising living costs, weaker labour market conditions and elevated borrowing costs, according to a research report by BofA Securities.
BofA Securities said the US economy has evolved into a "K-shaped" economy, where the financial health and spending patterns of higher-income households are masking the underlying stress faced by lower-income consumers. The report estimates that the top 10 per cent of households account for nearly 23 per cent of total consumer spending, compared with just 4 per cent for the bottom 10 per cent, making aggregate demand increasingly dependent on wealthier consumers. The brokerage noted that this divergence helps explain why consumer spending has remained resilient despite a slowdown in hiring and weaker consumer sentiment over the past year. Strong equity markets, healthier household balance sheets and recent tax relief have enabled affluent households to sustain discretionary spending, particularly on services, thereby supporting broader economic activity. BofA expects the labour market to gradually stabilize as hiring broadens beyond healthcare into sectors such as manufacturing, construction and leisure. Easing tariff uncertainty, resilient financial markets and a more contained oil price environment could reinforce this trend, helping narrow the gap between income groups if sustained. However, the report cautions that the economy remains vulnerable to a sharp correction in equity markets or renewed geopolitical shocks that could weaken higher-income spending. Since consumer demand has become increasingly concentrated among affluent households, any significant erosion in wealth effects could quickly translate into slower consumption and weaker employment growth. On the policy front, BofA argues that the US Federal Reserve is unlikely to respond aggressively to the widening income divide. Instead, it expects policymakers to continue their gradual approach to interest rates, balancing resilient aggregate demand against pockets of weakness in the labour market. While targeted fiscal measures could provide relief to lower-income households, BofA notes that elevated budget deficits, inflation risks and limited fiscal space will constrain the government's ability to narrow the growing economic divide. The report suggests the US economy remains on a stable footing, but its durability will increasingly depend on whether the ongoing K-shaped recovery broadens beyond higher-income consumers into the wider economy. (ANI)
|
