Survey: US income gap is holding back economy

The growing income inequality in the United States is hurting the nation’s economy, a majority of more than three dozen leading economists surveyed by The Associate Press said.

As US middle-class earning has stagnated while wealthier households have thrived, economists are becoming increasingly concerned about the effects of inequality on economic growth, the AP survey foud.

Analysts used to debate whether inequality was worsening and whether it impacted the economy, said Scott Brown, chief economist at Raymond James, a financial advisory firm. Now, he says, “there’s not much denial of that … and you’re starting to see some research saying, yes, it does slow the economy.”

One of the key sources of the economists’ concern is that higher pay and outsize stock market gains are flowing mainly to affluent Americans. Yet these households spend less of their money than do low- and middle-income consumers who make up most of the population but whose pay is barely rising.

Analysts say the economy would be better able to maintain its growth if the wealth was more evenly dispersed. For one thing, experts say, a plunge in stock prices typically leads wealthier Americans to cut sharply back on their spending.

The broader the improvement, the more likely it will be sustained,” said Michael Niemira, chief economist at the International Council of Shopping Centers

A wide pay gap limits the ability of poorer and middle-income Americans to improve their living standards, the economists said. About 80 percent of stock market wealth is held by the richest 10 percent of Americans. That means the stock market’s outsize gains this year have mostly benefited the already affluent.

US income inequality has steadily worsened in recent decades, according to numerous government data and academic studies.

Earlier this month, President Barack Obama pointed to the issue of income inequality and economic mobility during an economic speech in Washington.

Obama said income inequality “pose a fundamental threat” to the American society and is the “challenge of our time” and vowed to focus on the matter during his final three years in office.