US consumers go on spending spree as income inequality grows

This week’s charts focus on the booming US economy and urban revival, as well as agriculture in Australia and the impact of Brexit on UK trade.

By 
Julius Probst, PhD
 on 
November 19, 2021

ESG data is becoming more important as climate change intensifies. The Southern Oscillation Index tracks the El Nino phenomenon in the Pacific. The index is highly correlated with the agricultural production of crops in Australia. A high value indicates more precipitation and therefore higher agricultural output (See here http://www.bom.gov.au/climate/enso/soi/ for more). 

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Brexit continues to weigh heavily on the UK economy and the adverse effects can mainly be felt in the export industry. The following chart compares trade between the UK and EU countries such as Germany, France and Spain with non-EU countries Japan and Australia. It appears trade barriers are hurting UK exports.

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We recently added a new weekly economic tracker from the Federal Reserve Bank of Chicago, which provides an early snapshot of national retail spending. In the chart below, we have added a linear trend extrapolating the pre-pandemic trend. While there was a huge temporary dip in 2020, retail spending has been significantly above trend since the beginning of the year. This seems to back up the hypothesis that current inflationary pressures in the US are driven by surging aggregate demand.

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Consumer spending in the US may be rising, but it’s not because everyone has more money to burn. The country has the highest level of disposable income inequality among advanced economies, as our chart shows. 

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Asset ownership is highly concentrated, meaning that wealth inequality is much higher than income inequality. Data from the Fed’s distributional financial accounts show that most financial assets are held by the top 10%. Furthermore, wealth at the top has grown more quickly than wealth at the bottom. 

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The total market capitalisation of crypto currencies recently peaked at around USD2.2 trillion, adding roughly USD1 trillion of net wealth over the last year globally. While some have said that this has contributed to the US consumption boom, estimates suggest that every dollar in wealth generated only leads to a few cents of additional consumption. 

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Oxford Economics: North American Metro Service Databank

The following data is from Oxford Economics and can only be accessed by Macrobond users who have subscribed to this premium database.

During the pandemic, millions of people worked from home and some even relocated from urban areas. But reports of the death of the city are greatly exaggerated.

As the following tables show, the top 10 US metropolitan areas are expected to grow strongly over the next decade. The New York metropolitan area is expected to generate more than USD700 billion in GDP in 2031, followed by Los Angeles with USD450 billion. This is comparable to the current GDP of Switzerland and Austria, respectively.

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Employment is also expected to grow, albeit less dramatically than GDP. The elasticity of housing supply – dependent on building regulations – plays a crucial role. The New York area is expected to add much less employment than Dallas, Houston or Miami, where housing policies are more liberal.

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Weekly wages in metropolitan areas have greatly outperformed wages in more rural areas, which of course is also related to the increasing cost of living in larger cities. Decennial wage growth is expected to be around 30-40% over the next decade, translating to an annual growth rate of roughly 2.5-3.5%. Of course, there are wide variations by sector and income group.

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