MARY LOUISE KELLY, HOST:
Something is puzzling our Planet Money podcast team - two economic indicators behaving unusually. The first is consumer sentiment - our collective feeling about the economy. The other is consumer spending - how much we collectively spend. Now, those two lines on a chart normally move precisely the same way, but recently, they've split up. Sarah Gonzalez has more.
SARAH GONZALEZ, BYLINE: When Dhiren Patki, an economist at the Boston Fed, saw consumers spending, even though consumer sentiment is low...
DHIREN PATKI: I mean, it's mostly bafflement, right?
GONZALEZ: There are actually a lot of things going on right now that you'd expect to actively slow down overall spending. Like interest rates are high. We have growing inflation - still. Tariffs, which have made the prices of a lot of goods go up. And yet, overall spending is still strong.
PATKI: That's part of the puzzle as well. So not just the consumer sentiment versus consumer spending, but these other forces as well.
GONZALEZ: Patki did have a hypothesis. He thought something was making spending look strong, and he had a way to check - a giant database of credit card usage. He found that more than half of the credit card spending is coming from people with the highest income. And while that might sound like, yeah, of course the wealthiest people spend a lot, it's more than just that. Patki says the growth rate in their spending is what is particularly significant. The highest-income consumers are spending billions and billions more than they, as wealthy people, used to in a month. They're spending 86% more than they were 10 years ago, even adjusted for inflation. Meanwhile, the lowest-income consumers are spending 50% more than they used to.
So it's not that inflation and high interest rates and tariffs are all of a sudden not affecting consumer spending. They are. It's just that the people at the top are kind of insulated from some of those things. And this is the reason consumer spending looks so good. The highest-income Americans are propping up the economy with all their spending. But this does make the economy vulnerable.
PATKI: If more and more consumer spending is supported by households at the top of the income distribution, then some shock that affects their resources, like a shock to stock markets, may pass through into overall consumer spending more.
GONZALEZ: Our economy, you could say, is in a precarious situation.
You described our economy as a Jenga tower at the moment.
PETER ATWATER: So I mean it's a top-heavy Jenga tower.
GONZALEZ: Peter Atwater is an economics professor at William & Mary.
ATWATER: All of the economic strength in this economy is at the very top. And so our Jenga-tower economy is creating an illusion of prosperity.
GONZALEZ: Atwater says for the people at the bottom, things are bad and getting worse. And for the people at the top, it's good and getting better.
ATWATER: You have Delta Air Lines saying that next year, for the first time in its history, it will have more revenue from the front of the plane than the back of the plane.
GONZALEZ: For the first time ever?
ATWATER: For the first time ever.
GONZALEZ: So if consumer spending right now depends on the rich, and the rich are spending because they feel extra rich and confident because the stock market is also doing really great right now, Peter says a shock to the stock market is all it could take for the Jenga tower to fall over.
Sarah Gonzalez, NPR News. Transcript provided by NPR, Copyright NPR.
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