In the United States, income inequality remains a challenging issue, even as wages appear to be on the rise. The labor market is undeniably robust, with Americans earning more than before. However, the celebratory mood should be tempered because while the wealthy continue to accumulate riches, the situation for the majority is far from straightforward.
What’s Happening?
Recent reports have shown positive trends in compensation for U.S. workers. The Employment Cost Index for last quarter revealed a faster growth in total compensation than expected. Wage growth notably advanced at a healthy 1.2% pace during the July-through-September period, a significant acceleration from the 1% rise reported for the previous three months.
Additionally, the Survey of Consumer Finances, published by the Board of Governors of the Federal Reserve, showcased increased wealth among American households. Adjusted for inflation, the average net worth of an American household surged from $868,000 in 2019 to a remarkable $1.06 million in 2022. Even the median net worth for households saw a 37% increase since 2019, though it remained significantly lower than the average, standing at $192,900.
This discrepancy underscores the importance of the median as a more reliable measure than the mean, which can be distorted by extreme values. While the median net worth has seen significant growth, it still falls short of the amount Americans should ideally have in retirement savings.
Income Brackets and Inequality
Breaking down the numbers into income brackets reveals further disparities. The top 10% of wage earners, with an average net worth of around $6.6 million, experienced a remarkable 22% increase in their incomes from 2019 to 2022. In contrast, middle-income earners saw a 5% rise during the same period. This period saw an increase in income inequality, as reported by the Federal Reserve, marking one of the most substantial three-year increases in income inequality in modern survey history.
Consumer Confidence and Its Connection to Economic Inequality
This growing gap between the affluent and those with fewer resources may explain the declining consumer confidence in the economic outlook. The Conference Board’s Consumer Confidence Index fell for the third consecutive month, reaching 102.6 in October. This decline can be attributed, in part, to concerns about rising prices, particularly for groceries and gasoline.
Notably, the decline in confidence about the economy was most significant among consumers with a household income between $25,000 to $35,000. Conversely, those with household incomes ranging from $100,000 to $125,000 saw the most substantial increase in confidence over the past month.
Shifting Investment Patterns
Despite these challenges, there is a silver lining in the form of a growing interest in retail investing. Fed data indicates a significant increase in retail investing since 2019. The percentage of American families owning individual stocks, not just retirement funds, is approaching record highs. Share ownership among Americans under 35, who traditionally invested less than their older counterparts, has reached a record high, as has investment from Black and Hispanic Americans. This shift suggests that the economics of Wall Street now have a more pronounced impact on the finances of everyday Americans.
While economic disparities persist, these trends illuminate the complexities of the current American economic landscape and underscore the importance of addressing income inequality in both short-term and long-term strategies.
