Some of the pain of high inflation has been eased by a steadily growing economy and low unemployment, but Americans with middle- and low-incomes say they are under more stress.
A drop in the consumer sentiment index to a seventh-month low in June was the most recent sign. The drop was mostly caused by more stress among Americans with middle- and low-incomes.
It’s not a big surprise that the difference between how Americans see the economy is getting bigger. As the stock market has gone up, richer households have more money saved up, and their “paper wealth” has grown.
Rich Americans, on the other hand, have mostly spent all of their savings from the time of the pandemic. For now, they can only pay for things with the money they make from their jobs.
Economists say that their budgets are under more stress because inflation and interest rates are going up and up. A lot more people are not paying back their auto and other loans, and credit card use has gone up.
One good thing is that incomes have gone up a lot in the last few years. Businesses have had to pay their workers more because of a lack of workers, and many people who switched jobs got big raises.
According to a new report from the nonpartisan Congressional Budget Office, incomes have grown slightly faster than inflation since 2019. The CBO said that this means most families are spending a little less of their income on necessities.
No one has gotten the same benefits, though, and not everyone’s income has grown with the cost of living.
The most well-off people in the country spent 6.3% less of their income on goods and services in 2023 than they did in 2019.
On the other hand, those with the lowest incomes only spent 2% less.
That difference helps explain why people with more money are less worried about inflation than people with less money.
Also, the CBO found that lower-income households have seen bigger price increases for the things they normally buy than higher-income households. Their pay hasn’t gone up as quickly either.
What does the fact that more and more Americans don’t trust the economy mean for it?
Oren Klachin, an economist at Nationwide Financial Markets, said that people with middle-class and low-class incomes spend most of their money on goods and services they use. The economy might not work as well if people start cutting back on spending.
He said, “This will be an important trend to watch” in the second half of this year.
