The wealthy ramp up spending while other Americans tread water, new study finds

New data released Tuesday by the Federal Reserve Bank of New York reveals growing economic inequality in the United States, with higher-income Americans and college graduates significantly outpacing other groups in spending over the past three years.

The report shows that households earning $125,000 and above have increased their inflation-adjusted spending by 2.3% since 2023, while middle-income households ($40,000-$125,000) saw a more modest 1.6% increase. Americans earning less than $40,000 experienced the smallest growth, with spending rising just 0.9% during the same period.

This spending disparity provides evidence of what economists call a “K-shaped recovery,” where different segments of the population experience dramatically different economic trajectories following a crisis. The pattern may help explain widespread economic pessimism despite positive overall economic indicators.

The New York Fed’s analysis, derived from data tracking 200,000 consumers, also found that lower-income and rural households faced higher inflation rates in the final quarter of 2024 compared to wealthier households. This inflation gap compounds the spending divide, as poorer households typically allocate more of their budgets to necessities like housing, groceries, and utilities – categories that have seen substantial price increases since the pandemic.

“The difference in the trend in retail spending between college graduates and nongraduates is consistent with the story of a ‘K-shaped economy,'” wrote Rajashri Chakrabarti, an economic research advisor at the New York Fed, and three colleagues in the report.

When examined through the lens of education, the economic divide becomes even more apparent. Throughout 2023 and most of 2024, inflation-adjusted spending by households without college degrees fell below January 2023 levels, only recovering to that baseline in November 2024. Meanwhile, college-educated households had already boosted their spending by 4% by that time.

Notably, college-educated households maintained robust spending patterns even as white-collar industries like technology, government, and marketing experienced slowing hiring rates and job cuts in 2025.

The data is part of the New York Fed’s economic heterogeneity indicators, which aim to track economic variations across geographic regions and demographic groups. These metrics help economists and policymakers see beyond national averages to understand how different populations experience the economy.

The current trends mark a shift from the immediate post-pandemic period. In 2021 and 2022, lower-income households fared relatively better, buoyed by a tight labor market where companies competed for workers and government stimulus checks provided additional support. However, beginning in early 2023, hiring slowed while stock market gains disproportionately benefited wealthier Americans, widening the economic divide.

It’s worth noting that the spending data focuses exclusively on goods excluding automobiles, and doesn’t capture services like travel, restaurants, and entertainment – areas where higher-income households typically spend more heavily. This suggests the actual spending gap may be even larger than reported.

The findings align with other recent research, including a November paper from the Federal Reserve Bank of Dallas that documented increasing consumption and income inequality over the past three decades. According to that study, the wealthiest fifth of Americans now account for approximately 60% of earnings, up from 54% in the 1990s. Similarly, the proportion of spending by this top quintile increased to 57% from 53% over the same period.

This growing economic divide poses challenges for policymakers attempting to foster broadly shared prosperity and may contribute to political and social tensions if left unaddressed.