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NewsFlash: November 28, 2006

Consumer Spending Lags for Low and Middle-Income Workers

While much analysis has shown the increase in income stagnation and inequality, new Labor Department data show that consumption spending has also lagged for lower income households, while rising for high-income households, according to a joint analysis by the Economic Policy Institute and the Center on Budget and Policy Priorities. 

The authors of the  Issue Brief  – EPI senior economist Jared Bernstein and CBPP senior fellow Jason Furman – look at how consumption spending grew among high-income households, stagnated or grew slightly among middle-income households (depending on the measure used), and declined among low-income households between 2000 and 2005.

They find the consumption gap growing between high and low income households over the current recovery, such that the 2005 gap is the largest on record. Moreover, the authors show how tax cuts have boosted consumer spending for high-income households but have done virtually nothing for those at the low end of the scale.