Affluent Americans’ gains are driving U.S. economy
WASHINGTON — Since retiring two years ago, Joan Harris has upped her travel game.
Once or twice a year, she visits her two adult children in different states. She’s planning multiple other trips, including to a science fiction convention in Scotland and a Disney cruise soon after that, along with a trip next year to neolithic sites in Great Britain.
“I really have more money to spend now than when I was working,” said Harris, 64, an engineer who worked 29 years for the federal government and lives in Albuquerque, N.M.
Back then, she and her now-ex-husband were paying for their children’s college educations and piling money into savings accounts. Now, she’s splurging a bit and, for the first time, is willing to pay for first-class plane tickets. She plans to fly business class to Scotland and has arranged for a higher-level suite on the cruise.
“I suddenly realized, with my dad getting old and my mom dying, it’s like, ‘No, you can’t take it with you,’ ” she said. “I could become incapacitated to the point where I couldn’t enjoy something like going to Scotland or going on a cruise. So I better do it, right?”
Older Americans like Harris are fueling a sustained boost to the U.S. economy. Benefiting from outsize gains in the stock and housing markets over the past several years, they are accounting for a larger share of consumer spending — the principal driver of economic growth — than ever before.
And much of their spending is going toward higher-priced services like travel, health care and entertainment, putting further upward pressure on those prices — and on inflation.
Affluent older Americans, if they own government bonds, may even be benefiting from the Fed’s rate hikes. Those hikes have led to higher bond yields, generating more income for those who own such bonds.
The so-called “wealth effect,” whereby rising home and stock values give people confidence to increase their spending, is a big reason why the economy has defied expectations of a sharp slowdown. Its unexpected strength, which is contributing to stickier inflation, has forced a shift in the Fed’s plans.