Support for LAist comes from
Made of L.A.
Stay Connected

Share This


The Rich Have Stopped Spending And That's Tanked The Economy

The Coach store at the Citadel Outlets on the day the mall reopened in May. (Chava Sanchez/LAist)
Support your source for local news!
The local news you read here every day is crafted for you, but right now, we need your help to keep it going. In these uncertain times, your support is even more important. Today, put a dollar value on the trustworthy reporting you rely on all year long. We can't hold those in power accountable and uplift voices from the community without your partnership. Thank you.

Our news is free on LAist. To make sure you get our coverage: Sign up for our daily newsletters. To support our non-profit public service journalism: Donate Now.

By Scott Horsley | NPR

The wealthiest American households are keeping a tight grip on their purse strings even as their lower income counterparts are spending a lot more freely when they emerge from weeks of lockdown. That decline in spending by the wealthy could limit the whole country's economic recovery.

Support for LAist comes from

Researchers based at Harvard have been tracking spending patterns using credit card data. They found that people at the bottom of the income ladder are now spending nearly as much as they did before the coronavirus pandemic.

"When the stimulus checks went out, you see that spending by lower-income households went up a lot," said Nathan Hendren, a Harvard economist and co-founder of the Opportunity Insights research team.

However, the wealthy are not matching them. "For higher-income individuals, that spending is still way far off from where it was prior to COVID and it has not recovered as much," Hendren said.

The View From L.A.

  • As of early June, spending nationwide was down about 12.7% compared to January. That was up from a downturn of more than 30% in late March/early April.
  • California has seen some of the steepest downturns in spending. As of June 3, spending in the state is down 22.9%, up from a low of 36% in late March.
  • Downturns in the L.A. area have been steeper. Spending here was down 26.1% as of June 3. Lows reached near 37% in late March.

(Courtesy Track the Recovery)

That's potentially crippling because consumer spending is a huge driver of economic activity. In fact, so much of the country's economy depends on shopping by the top income bracket, that the lack of spending by 25% of the wealthiest Americans made up fully two-thirds of the total decline in spending since January.

The wealthy aren't holding back because they don't have the money. By and large, they have lost fewer jobs and aren't the ones who are worried about making rent.

They have a lot of discretionary income and before the pandemic were spending a significant chunk of that going to nice restaurants, the theater, or traveling and staying in nice hotels. Those are precisely the things that have been off limits since the coronavirus hit.

Support for LAist comes from

That makes this very different from an ordinary recession, when spending on such services doesn't dry up so quickly.

Hendren and his colleagues found that businesses that deliver in-person services in wealthy neighborhoods have seen the biggest drop in sales and are struggling to recover, while a retail store or take-out restaurant in a poorer neighborhood might have seen some decline but they're starting to come back now. Also, almost everyone has continued to spend on essential items like food and household purchases, but those make up a smaller portion of upper-income budgets.


Retail sales bounced back in May after a steep drop in March and April, when the pandemic took hold in the United States. Federal Reserve Chairman Jerome Powell pointed to the spending numbers as evidence that federal efforts to prop up the economy are working.

But Powell, who was speaking before the Senate Banking Committee on Tuesday, also cautioned that businesses that rely on delivering personal services may not recover soon.

It spells trouble for the people who work in those nice restaurants or other service-oriented businesses. Hendren's team found big job losses specifically among workers, many of whom don't make a lot of money, but who worked in high-income neighborhoods.

Many of those jobs may not be coming back any time soon. And because it's not a lack of money that's keeping the rich from spending, the usual tools the government might use to fight a recession are not terribly helpful here.

"From the perspective of people who are not living paycheck-to-paycheck, the main concern here is really fighting the virus," Hendren said. "Unless we remove the threat of getting sick or getting your family members sick, it's hard to imagine that that spending will recover to the pre-COVID levels."

Since a vaccine or effective therapy for the virus could be a year or more away, both Powell and Hendren suggested people who've lost jobs in those businesses may need additional help from the government.

"There are going to be an awful lot of unemployed people for some time," Powell cautioned.

Here's a look at what the data shows about spending in California

Copyright 2020 NPR. To see more, visit

Most Read