[New York Diary] The U.S. Economy Standing on a 'Jenga Tower'

Consumption by Middle- and Low-Income Households Shrinks Amid High Inflation
Spending by High-Income Households Remains Strong on Stock Market Gains
"K-Shaped Economy" at Risk as Bubble Concerns Grow in the Stock Market

Since coming to the United States, I often use dollar stores. When I need to quickly buy school supplies for my children and stop by a convenience store like CVS, a single notebook or card easily costs over $5 (about 7,400 won). However, I can purchase the same items at a dollar store-essentially the "Korean 1,000-won shop"-for $1.25 (about 1,850 won). If the quality difference is not significant and the distance from home is about the same, choosing the dollar store has become the natural choice.

On the 11th (local time), people are passing by the Macy's store near Herald Square in Manhattan, New York, USA. Bloomberg.

This consumption trend is not limited to low-income groups in the United States. The recent shift in the customer base of American dollar stores illustrates this well. Dollar Tree announced in its third-quarter earnings report this year that it had gained 3 million new households as customers, with 60% of them having an annual income of $100,000 (about 150 million won) or more. This is an increase from 50% in the first quarter. With cumulative inflation since 2020 reaching about 25% and companies hesitating to hire due to tariff uncertainties, this is seen as a sign that some middle-class consumers are trading down.

In contrast, premium consumption led by high-income earners remains strong. According to Bank of America's card payment data, per-household credit and debit card spending in November increased by 1.3% compared to a year ago. Among these, the spending growth rate for high-income households was 2.6%, double the average. Middle-income households saw a 1.4% increase, while low-income households only increased by 0.6%. This means that high-income earners are driving U.S. consumption. Judging by my own recent experiences-barely managing to book New York Christmas show tickets costing around $200 (about 300,000 won) per person for unwanted dates due to rapid sellouts, and repeatedly failing to get reservations at popular restaurants-the enthusiasm for consumption among high-income groups remains strong.

This is the backdrop for why U.S. consumer spending has remained more robust than expected recently. Although the growth in consumption, which accounts for about two-thirds of the U.S. economy, is slowing, it has not yet reversed. However, not all income groups are increasing their spending evenly. In its Beige Book economic report released last month, the Federal Reserve noted, "Overall consumer spending has declined, while retail spending on high-priced goods remains solid." One regional Federal Reserve Bank analyzed, "High-income households are not constrained in their spending, but middle- and low-income groups are tightening their belts." This is the so-called "K-shaped" polarization in consumption.

The growing dissatisfaction among voters, despite strong U.S. economic growth and solid indicators, is closely related to this. This is why "affordability" emerged as a key issue in last month's New York City mayoral election. Ahead of next November's midterm elections, economic advisors to the Donald Trump administration, whose core support base is white working-class Americans, are heavily promoting the strength of the U.S. economy. Trump has also floated the idea of a $2,000 (about 3 million won) per-person dividend funded by tariff revenues-moves clearly aimed at addressing public discontent.

The bigger concern is that next year, even macroeconomic indicators could worsen. The spending by high-income earners, which currently supports consumption, is closely tied to rising stock prices. The S&P 500 index has surged in recent years (up 24.2% in 2023, 23.3% in 2024, and a cumulative 16.1% so far in 2025), amplifying the wealth effect. However, if overheating in tech stocks and bubble concerns intensify, the impact on consumption could be significant. It is no exaggeration to say that the U.S. economy is running on the stock market.

Peter Atwater, the economist who popularized the concept of the "K-shaped economy," recently compared the U.S. economy to a top-heavy Jenga tower. Although it appears tall and sturdy from the outside, it is a structure with missing blocks at the bottom, meaning it could collapse easily with even a small shock. The key point to watch in the U.S. economy next year is how long consumption by high-income earners, which precariously supports this Jenga tower, can be sustained. The moment a stock market correction or a slowdown in employment shakes consumer sentiment among this group, the current solid indicators may quickly reveal their underlying fragility.

This content was produced with the assistance of AI translation services.