MW Are you making it in this economy, or just getting by? These two factors can determine your status.

By Hannah Erin Lang

Years of high inflation and interest rates have driven a deeper wedge between wealthy people and the working class. Here's why so many Americans were left behind - and what it could mean for the economy.

Tahtebah Gonzalez got a raise last year - but it didn't help much.

The 27-year-old left his job at Dunkin' this past fall for another full-time job selling concessions at the State Farm Arena in Atlanta. He earns about $16 an hour plus tips, a wage increase of nearly 50% from his last gig.

Still, Gonzalez is searching for ways to cut back. He recently switched phone carriers to shave about $35 from his monthly bill, and moved to Decatur, Ga., with his mother and younger sister last year after their rent in a different suburb kept rising. Most of his co-workers at the arena work two jobs to make ends meet. Gonzalez frequently wonders if he should do the same.

"It seems that's the only thing that helps out these days," he said. With his paychecks stretched so thin, Gonzalez added, he hasn't saved anything for emergencies or retirement: "You have limited options."

Across the country in Arizona, Kevin Blakely feels lucky to have made few such sacrifices. He retired from his full-time job as a banker in 2012 with a sizable nest egg.

Blakely and his wife refinanced the mortgage on their home near Scottsdale during the pandemic, locking in an interest rate around 2.5%. Their investment portfolio got a boost from back-to-back years of riproaring stock-market returns, and their net worth has increased.

"I don't like [higher prices], but I can handle it," said Blakely, 73. "I think the economy seems to be doing OK right now, but I think it all depends on your perspective."

The past four years, punctuated by a global pandemic, skyrocketing prices and interest-rate swings, have reshaped the American economy in many ways. Among them is a sharper division between the country's haves and have-nots.

On one side are consumers who saw their net worth skyrocket in recent years, could make the most of interest-rate movements and dulled the sting of higher prices with on-paper wealth gains. On the other side were those who quickly spent down savings and stimulus checks, struggled to keep pace with higher costs despite rising wages and felt their grip on financial security loosen.

What determined who got farther ahead and who was left behind? Those who did well tended to have two things in common: They owned their homes, and they were invested in the stock market.

'I worry that for those at the bottom, that they don't see that divide as something that they can cross.'Paul Atwater, economics professor at the College of William & Mary

Equity-market gains have swelled investors' pockets, as low-income households buckled under price hikes for essentials like child care, groceries and rent. The housing market has all but locked out first-time and budget-conscious buyers after interest rates rose in 2022 and home prices hit record highs. The experts and the headlines say that the U.S. economy is healthy, but many Americans have made it clear - in consumer-sentiment surveys and at the ballot box - that they disagree.

That disparity in outcomes is contributing to the discontent that so many Americans feel about the economy, experts told MarketWatch.

"Younger households, poor households, less-educated households ... they're the people who are clobbered by inflation," said Paul Shea, a macroeconomist at Bates College. "I think one of the reasons why people are so upset about this is that not only is inflation moving wealth around, but it's benefiting people that are already relatively better off, and it's hurting people who are trying to break in."

A tale of two housing markets

The rising cost of housing - and the different ways in which it affected renters versus homeowners - helped shape the uneven impact of price increases when inflation took hold in 2022.

After dipping during the first year of the pandemic, the annual rate of inflation for rent shot up to nearly 9% in May 2023. Cumulatively, rent prices in the U.S. have increased more than 26% since the beginning of 2020.

In some places, the hike has been even larger. Rents in Atlanta increased nearly three times as fast as wages from 2019 through 2023, according to the property-listing site Zillow $(ZG)$. In places like Tampa, Fla., the cumulative rent increase for that period was 50%.

But the two-thirds of U.S. adults who own their homes were able to evade those cost increases, or even lower their monthly housing payment.

During the first year and a half of the pandemic, mortgage rates fell to historic lows. Homeowners rushed to refinance, with average rates for a 30-year loan dropping as low as 2.7%.

When mortgage rates rose sharply later on, that window of opportunity closed. But many homeowners had already locked in lower payments.

Many owners also saw their wealth increase on paper, thanks to rising property values. The median home price has risen nearly 28% since the start of 2020, according to the Department of Housing and Urban Development.

"You're benefiting from this low interest rate that you've locked into, and at the same time the equity in your home is going up," said Shea, the Bates College economist. "Even if you just bought a house at the right time, it's like you won the lottery a little bit."

That helped insulate some homeowners from the worst effects of price increases, even if their wages didn't rise. That was the case for Samuel Molina, a 37-year-old who left his nonprofit job last year to start his own financial-education company.

Though he took a pay cut, he has still been able to afford his bills - in part because he owns his three-bedroom house in Fresno, Calif., and rents out the extra rooms.

"I'm one of those few people who's lucky enough to have a mortgage less than $1,000," said Molina, who bought his home in 2017. His monthly payment has been pretty much the same for seven years, he said.

About 200 miles away in Los Angeles, 34-year-old Shae Williams had to leave her old apartment and move in with a roommate after she was laid off from a marketing job in 2022.

When she first moved into her former apartment, rent and utilities cost her about $1,800 a month, she said. By the third year she lived there, they were $2,500.

That increase made her job search more frantic.

"In the process of interviewing, my mind wasn't clear," said Williams, who has since landed a new role in product development. "It was so much pressure, because if I didn't get this job, I was going to lose my apartment."

Maximizing the markets

Another dividing line in the economy of the early 2020s emerged from the financial markets, benefiting those with already-padded portfolios.

Equity investors were heartily rewarded in 2023 and 2024, with the S&P 500 SPX notching annual gains of 24% and 23%, respectively. Other assets, like gold and bitcoin, also offered standout returns.

About 58% percent of U.S. households own stocks, according to the Federal Reserve's most recent survey of consumer finances. That number, which includes those who own stocks through investment funds or retirement accounts, is the highest rate ever recorded by the survey.

But equity ownership is most concentrated among the top 10% of households - and that still leaves about four in 10 families that missed out entirely on the wealth generated by the markets recently, economists say, many of them lower earning and less educated.

And those with more money in the market earned bigger returns.

Eric Roberge, a Boston-based financial planner, said that's been the case for the six-figure earners he works with at his wealth-management firm. Price increases haven't severely impacted their ability to spend - or to keep plugging extra cash into their investments.

"They're putting money in, and they've actually seen a great jump in their balance sheet because of the equity markets," he said.

The 'K-shaped recovery'

Not every American who owns their home or has a 401(k) was insulated from the impact of aggressive inflation, rising interest rates or other economic challenges. Skyrocketing costs of essentials like healthcare and child care in particular reached across income brackets and hurt even some well-off households.

It's also true that the ongoing costs of homeownership that owners pay on top of their mortgage payment, such as insurance and taxes, have shot up in recent years, crimping homeowners' budgets.

From the archives (September 2024): This family makes 'really good money' - and spends $70,000 of it on child care

But the unequal burden has already stoked frustration in the bottom half of the economy, said Peter Atwater, an economics professor at William and Mary who writes and researches on the impact of consumer confidence.

Back in the summer of 2020, Atwater warned of a "K-shaped recovery" from the COVID-19 pandemic - one in which wealthy consumers recouped losses quickly and easily, while the working class faced a longer, more painful financial recovery.

Treasury Secretary Janet Yellen referenced the concept during her confirmation hearing in 2021, adding that the pandemic had exacerbated a trend that was already evident.

"People worry about a K-shaped recovery, but well before COVID-19 infected a single American, we were living in a K-shaped economy: one where wealth built on wealth while working families fell further and further behind," she said.

Four years later, Atwater said he still sees that gap.

"It's only gotten wider," he told MarketWatch. "I worry that for those at the bottom, that they don't see that divide as something that they can cross."

(MORE TO FOLLOW) Dow Jones Newswires

January 10, 2025 07:30 ET (12:30 GMT)

MW Are you making it in this economy, or just -2-

Economists have different takes on what this all reveals about the post-COVID economy. Some note that the burden of inflation has always fallen disproportionately on poor people. Others have called for a new approach in the way we interpret economic data to better reflect consumers' experiences, or argue that the current cost-of-living crisis only revealed pre-existing problems, like stagnating wages.

What is clear is that it's unlikely the dynamics at the heart of the trend will shift or reverse course anytime soon. Mortgage rates remain persistently high, and other costs are piling on to make the housing market inaccessible. Many analysts are predicting a tamer year for stocks in 2025 - so those who aren't in the markets already likely missed the boat on blockbuster returns.

Some households are buckling under the years of strain: Consumers are delinquent on credit-card bills and car payments at rates not seen since the Great Recession era, according to Federal Reserve Bank of New York data.

And for those who have little wealth to build on, it can feel like the odds are increasingly stacked against them. That's one reason Gonzalez, the Atlanta concession worker, joined a union at his last job. Though workers succeeded in winning higher pay, Gonzalez said, the new rate still wasn't enough to cover his monthly bills, and he moved on.

"How can it be a good economy when we're working to death to afford things?" he said. "It's definitely going to take the working class to force that change. It doesn't happen overnight - but it's not something they're going to give us."

Do you feel like you're "making it" in this economy? What types of changes would make you feel better about the U.S. economy right now? We want from readers about their money-related experiences and questions. You can fill out this form or write to us at readerstories@marketwatch.com. A reporter may be in touch to learn more. MarketWatch will not attribute your answers to you by name without your permission.

-Hannah Erin Lang

This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.

(END) Dow Jones Newswires

January 10, 2025 07:30 ET (12:30 GMT)

Copyright (c) 2025 Dow Jones & Company, Inc.