The U.S. economy depends on the rich. That could hurt the labor market

Spending is being held up by the wealthy, while consumption from middle and lower income groups continues to fade.Why it matters: The tale of two economies, also called a K-shaped recovery, is taking shape before tariffs have even taken effect, which could further pressure lower-income spenders, and potentially, the labor market.Catch up quick: The top 20% of earners now make up over half of consumer spending, according to Moody's. Meantime, spending from middle and lower income consumers has flatlined to kick off 2025, roughly in line with inflation.Consumer spending makes up two-thirds of GDP, meaning that it largely determines whether our economy is growing or slowing.But the rich are doing most of the spending, making consumption overall look resilient, when in reality it's a small group propping up the data.What they're saying: "The lower-income households are struggling, and you also see that on the corporate side, so those who serve that segment don't have pricing power," Mohamed El-Erian, the former PIMCO CEO and current president of Queen's College at Cambridge University, tells Axios.Be smart: It's not just wealthy consumers faring better. Bigger businesses are also outperforming.But small businesses are the largest employers, so if they struggle, that could lead to bigger cracks in an already stumbling labor market.Meantime, the largest corporations that drive the stock market are expected to be resilient, but they're not the ones generating the most jobs. The intrigue: Americans with less money are also less likely to benefit from the wealth effect: the rally in stock prices that fuels spending among those who own stocks (people who tend to already be wealthy). That wealth effect is also a risk, according to Ryan Sweet, chief U.S. economist at Oxford Economics, since the rich could slow down on spending if stock prices falter, which may be coming this fall.The bottom line: A handful of wealthy Americans and big corporations are seemingly keeping the economy afloat, while the majority of the population is struggling to keep pace with inflation, all before tariffs are fully baked in.

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