It's not a surprise to see that the spending cutbacks have started, with as much as 60% of U.S. consumers living paycheck to paycheck. Even with a strong job market and wage gains, as well as Covid savings, pricing spikes in core spending categories including food, gas and shelter are leading more Americans to mind their pocketbooks closely.
According to a survey by CNBC and Momentive, Americans are worried about inflation and the risk of a recession, and have started buying less if inflation continues. Lower-income consumers are not the only ones who experience financial stress. The survey shows that Americans with incomes of $100,000 or more are less likely to cut back on spending than are people with less money.
The economy depends on the high-income consumer demographic. It is responsible for up to three-quarters of the spending and represents only one-third of consumers. If the high-income consumers are out buying, we won't see a big impact on consumer activity.
According to the survey results, lower-income households are more likely to be making tradeoffs to make their money stretch as far as it did just a few months ago. The survey shows that Americans with less than $50,000 in income are more stressed out than those with $100,000 or more. The majority of Americans with income of $50,000 or less told the survey that they were worried about higher prices, but the number of high-income consumers who said they were worried was much higher.
When it comes to dining out, taking vacations, and buying a car, more than half of people with household incomes under $50,000 say they have already cut back on multiple expenses due to prices.
Laura Wronski said that people making six-figure incomes are almost as worried about inflation as people making half as much.
The consumer survey data paints a weak picture.
The two worst recessions in the past 50 years, from March 1979 to April 1981 and May to October 2008, were the only times when more consumers mentioned reduced living standards due to rising inflation. The consumer confidence gap between low and high income levels is always widest at peak and is narrowing now, according to survey director Richard Curtin.
The percentage point gap between the lowest income and highest income group in the survey was in January. In March, the top income group sentiment fell below the lowest income group in overall sentiment and future expectations. The higher income group expectations were 18 percentage points higher in January.
The potential for Russia's invasion of Ukraine to do more damage to the global economy than forecast and the fact that the majority of the population has not experienced 10%+ inflation are some of the issues that could be making this gap narrowing worse.
They may display behaviors associated with more extreme economic conditions in the past.
The American consumer is in a dark mood, according to the CNBC survey data. More than two years after the Pandemic hit, with millions of lost jobs and high unemployment, and now high inflation, and fractured politics weighing heavily on the collective psyche.
All income groups agree that the economy will enter a recession this year. The actual spending actions from the economy don't yet indicate that this prediction will come true.
Consumers are still spending strongly despite the downbeat feelings about their finances. There are lots of jobs, unemployment is low, debt loads are light, asset prices are high, and there is a lot of excess saving.
The Conference Board's latest monthly confidence index shows present confidence up for the first time this year, but the expectations index is lower, with consumers citing rising prices.
Lynn Franco, director of economic indicators and surveys at The Conference Board, said there is still a gap in its confidence data between lower income and higher income consumers and a lot of that is driven by the inflationary environment and less impact the affluent will feel from factors including gas prices. She said that the gap does always narrow in a pre-recession period, but that the data is not indicating a recession as of now.
The survey predicts that growth will slow over the next few quarters due to higher prices and Americans spending less on discretionary items. 6 out of 10 consumers surveyed by The Conference Board think the Russia-Ukraine war will cause prices to rise significantly, and that will be most acutely felt by the lower-income consumers.
Franco said that people may be more hesitant to purchase big-ticket purchases if interest rates go up.
Franco said that Americans with an income of $125,000 are still relatively confident despite all that has happened. She said that the indications we are getting across income groups speaks to softer consumer spending.
The Conference Board data is underpinned by a key role for the labor market in supporting confidence and balancing the negative influence of inflation, with Americans who say jobs are at an all-time high.
A tale of two cities, with higher income consumers continuing to be strong while lower income consumers are beginning to chew through theStimulus, has been mentioned by members of the CNBC CFO Council. There will be a new equilibrium point, and inflation won't grow as it has over the past year, but it will remain at a higher level, and the consumer spending has to be set against this.
The decline in the consumer savings rate, how successful the Fed is in using its tools to slow the economy without pushing it into recession, and greater supply chain stability are some of the factors that CFOs are watching.
The Russian war against Ukraine is hitting energy and food prices, as well as the new Covid variant. If supply chain pressures ease, consumers will begin to trade down in certain categories of purchases, and retailers will begin to fight over pricing, as they will begin to slow down consumption habits.
According to the Conference Board's most recent CEO survey, companies are passing along the costs of inflation relatively quickly to consumers, and that pattern is likely to continue in the months ahead, with wage gains a contributing factor.
The market will be looking for signs of consumer strength when earnings come in. ConAgra's results showed that it couldn't make price increases flow through to its bottom line relative to input costs, but CEO Sean Connolly said on Thursday that consumer demand has remained strong in the face of our.
The company is planning more price increases.
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