The resilience of consumer spending, despite weak employment growth, is driven by affluent consumers liquidating assets or drawing down cash. This balance sheet-driven consumption explains why traditional income-based models (like savings rates) are failing to predict a slowdown.
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Spirit's troubles highlight a broader market trend where budget-conscious consumers cut back while the wealthy splurge on luxury. This pattern, once confined to goods, is now evident in services like travel, signaling a potential risk for other budget-focused businesses and an opportunity for luxury brands.
The idea that a billionaire can "spend" their net worth is flawed. Their wealth is primarily in company stock; liquidating it would crash the price and signal a lack of confidence. This misunderstanding of wealth versus income fuels unrealistic proposals for solving global problems.
Despite a 9.1% year-over-year increase in nominal sales, Black Friday data reveals consumers bought 4.1% fewer items and dramatically increased their use of "Buy Now, Pay Later" services. This indicates that inflation, not strong consumer health, is driving top-line revenue growth for corporations.
While high-income spending remains stable, the next wave of consumption growth will stem from a recovery in the middle-income segment. This rebound will be driven by stabilizing factors like reduced policy uncertainty and neutral monetary policy, not a major labor market acceleration.
Despite a still-growing labor market, real wage growth has slowed to "stall speed." This lagged effect on middle and lower-income households is the primary driver for the projected 2-percentage-point drop in real consumption growth for Q4 and Q1.
Morgan Stanley identifies a rare divergence between strong U.S. spending data and very weak employment figures. How this tension resolves will determine the global economy's path in 2026, creating either a mild recession or a spending-driven boom. Other major economies like Europe and China are not expected to be sources of major surprises.
The U.S. economy can no longer be analyzed as a single entity. It has split into two distinct economies: one for the thriving top tier (e.g., AI and tech) and another for the struggling bottom 60%. The entire system now depends on spending from the rich; if they stop, the economy collapses.
The top 10% of earners, who drive 50% of consumer spending, can slash discretionary purchases overnight based on stock market fluctuations. This makes the economy more volatile than one supported by the stable, non-discretionary spending of the middle class, creating systemic fragility.
The top 10% of US earners now drive nearly half of all consumer spending. This concentration suggests the macro-economy and stock market can remain strong even if AI causes significant unemployment for the other 90%, challenging the assumption that widespread job loss would automatically trigger an economic collapse.
Higher interest rates on government debt are creating a significant income stream for seniors, who hold a large amount of cash-like assets. This cohort's increased spending power—either for themselves or passed down to younger generations—acts as a counterintuitive fiscal stimulus, offsetting the intended tightening effects of the Fed's policy.
