Inside America’s gravity-defying economy

Article content

Mercedes-Benz reported last week that retail sales of its G-Wagon, the price of which starts at US$148,250, had risen by 41 per cent over the year to date, compared with a six per cent rise in the company’s U.S. sales.

Article content

But the worst-off are beginning to suffer now that U.S. companies are creating fewer jobs, as Fed chair Jay Powell warns of a “low hire, low fire” economy.

Article content

During the pandemic, all U.S. households benefited from the stimulus cheques provided by Trump and then former president Joe Biden. In the years since, jobs have been in plentiful supply — helping to support strong wage growth.

Article content

Now economists are watching a drop-off in the job market, which could be down to softening demand or the immigration crackdown. Other data sources show that America’s lowest paid workers — who are most susceptible to downturns in the economic cycle — are now seeing lower wage growth than higher earners.

Article content

Figures from the Atlanta Fed show that in August, the lowest quartile of workers had seen an average wage rise of 3.6 per cent, compared with 4.6 per cent for the highest earners.

Article content

“Even if the averages look good, if you go to the low-income population — not just in the U.S. but everywhere — they are suffering because inflation is prohibitive and wages have not picked up as much,” says Ana Botín, executive chair of Spanish bank Santander.

Article content

Article content

On Thursday, Fed governor Christopher Waller said his business contacts were reporting that lower-income earners had been affected by higher prices. They were, he said, “already changing…spending plans to find better value.”

Article content

Their woes are set to intensify next year, when the Trump Administration’s signature tax and spending legislation, the One Big Beautiful Bill Act, is implemented.

Article content

The Congressional Budget Office, the fiscal watchdog, estimates the tax cuts will make the rich richer but at the expense of the poorest Americans.

Article content

Cuts to medical insurance and food stamps will lower resources for the lowest decile of the U.S. income distribution by US$1,600 per year. The top 10 per cent could expect to see their resources rise by US$12,000 a year, it said.

Article content

There are widespread fears, including among public officials, that AI will exacerbate this gap between rich and poor in the U.S.

Article content

Cornell University professor Eswar Prasad said the impact of the AI boom in curbing job creation was spooking some officials from low-income countries as well.

Article content

“They are almost in a state of paralysis,” he says. “They see a major shockwave coming but feel powerless to do much about it.”

Article content

Article content

Other worries

Article content

Expensive equities are not the only troubling sign in financial markets. The gold price has come to symbolize a deterioration of confidence in the dollar and the potential for big geopolitical shocks to hit global growth.

Article content

Tobias Adrian, the IMF’s director of monetary and capital markets, says that analysts’ bullish expectations on AI companies’ earnings could eventually backfire. “One risk is that at some point, earnings could disappoint and that could then trigger a sell-off,” he tells the FT.

Article content

Market have been showing signs of nerves during the week as some investors fret about the health of U.S. regional banks.

Article content

“A lot of it hangs on this optimism in investors and the stock market — if the stock market were to level out where it is now the gain is sufficiently large to keep consumption increasing at a brisk clip well into next year,” says Karen Dynan, a professor at the Harvard Kennedy School and former chief economist at the U.S. Treasury.

Article content

“I think the bigger issue is what if there is some sort of correction?”

Article content

Ministers continue to fret about politics — particularly the unpredictability of U.S. trade policy and the risk of fresh disruptions to global trade. Some are pointing to this month’s outbreak of hostilities between China and the U.S. over critical raw materials as a sign that the global economy remains in a vulnerable state.