1Q26_ Quarterly Outlook Report_Final_EN - Flipbook - Page 65
T H E P LUMB LI N E | A RETU RN TO F I RS T PRI N CI PL ES
The top quintile of earners accounts for the bulk of the total income share
100%
75%
50%
25%
0%
1989
1992
1995
1998
2001
Income share (top 20%)
2004
2007
2010
2013
2016
2019
2022
Income share (bottom 80%)
Source: Survey of Consumer Finances, Scotia Wealth Management
The shift toward greater income and wealth concentration over the years may also explain why
aggregate measures of the marginal propensity to consume (MPC) have declined over time, with
research from the Federal Reserve showing that households with higher levels of wealth tend to
exhibit lower MPCs.
The propensity to consume out of wealth has declined as income becomes increasingly
concentrated at the top
3.7
3.5
3.3
3.1
2.9
2.7
2.5
1989
1994
1999
Propensity to consume out of wealth (cents)
2004
2009
2014
2019
Implied propensity to consume out of wealth (cents)
Source: Beach, Samara, William Gamber, and Patrick Moran (2025). "Wealth Heterogeneity and Consumer Spending," FEDS Notes. Washington: Board of
Governors of the Federal Reserve System, August 05, 2025, https://doi.org/10.17016/2380-7172.3838., Scotia Wealth Management
Importantly, this decline does not imply weaker consumption in level terms. Rather, it reflects the
increasing concentration of wealth among higher-income households, who tend to exhibit lower
MPCs despite accounting for a large share of total spending. Put simply, aggregate consumption
may be supported by rising wealth at the top, but incremental gains may translate into
proportionally smaller increases in spending. All the while, consumption remains exposed to
asset price corrections in an environment of elevated equity valuations and narrow market
leadership, along with falling house prices (in real terms) which may further dampen the wealth
effect.
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