For Naomi Burns and her six-member family, life is difficult. In a little hamlet about an hour outside Portland, Oregon, she and her partner are raising four kids, mostly with the help of his $65,000 yearly wage as a traffic-control flagger. Burns primarily looks after their kids, but she also makes around $1,000 a month from her work on social media and DoorDash deliveries to help pay her bills.
Burns informed MarketWatch that the family does not qualify for public assistance services, saying, “He brings home about $680 a week, and we need something like $1,000 a week just to break even and have grocery money and pay all of our bills.” “My side hustles are actually what makes it so that we can survive.”
Burns makes every effort to make the most of their meager income in order to improve their quality of life. To keep their grocery spend as low as possible, they must carefully plan their meals, keep an eye on food sales, and use coupons and store points at the nearby Safeway. According to Burns, she recently used coupons and deals to get $152 worth of goods for $20. The weekly grocery budget for the household is $100.
Sometimes there’s money left over to treat yourself to a fast-food establishment. The four children typically divide two $5 lunches at McDonald’s (MCD) or three $5.99 meals at Taco Bell (YUM), for which Burns accrues reward points for future savings.
According to Burns, she does not have any money to save for the future or to spend on herself. For example, she claims that “I just can’t afford it” and doesn’t wear makeup or follow any skin care regimen. Burns stated that despite her deliberate handling of the family’s finances, “we go back and forth between barely making enough to be comfortable but not having anything extra, and not making enough” because costs have been rising continuously over the past three years.
The American consumer has been driving the global economy for decades, not just the largest economy in the world. However, the effects of inflation have become more noticeable for American consumers with low and even middle incomes. They have to make difficult choices about discretionary spending, such as going out to eat or buying a toy on a whim, and they have to make even more difficult judgments about larger purchases, like vacations or cars. Because of this, Americans with low and moderate incomes today comprise a smaller share of the U.S. economy than they have in a very long time.
50.3% of all consumer spending in the US is currently attributed to the bottom 90% of earners, or those who make less than $250,000. This information comes from Moody’s Analytics (MCO). They were responsible for 64% of U.S. expenditures thirty years ago. According to Moody’s, middle- and low-income Americans reduced their spending from fall 2023 to fall 2024 as the wealthiest made up a larger portion of the U.S. economy, supporting overall consumer expenditure.
Because of this, several businesses have made high earners the focal point of their strategy. For example, according to Cox Automotive, automakers have been concentrating on more lucrative models, raising the average price of a new car to over $50,000 and the average age of new car buyers to 52.
According to Diane Swonk, chief economist at KPMG, having high-income people who are less price sensitive drive a lot of spending has kept inflation high, she told MarketWatch. According to the Bureau of Economic Analysis’s most recent figures, inflation in January was 2.6%, which was still more than the Federal Reserve’s 2% target. According to the consumer-price index, prices have increased by 23% over the past five years and 13% over the last three.
The Peterson Institute for International Economics estimates that tariffs will cost the average household $1,200 annually, making their financial situation even worse even while inflation has made life more difficult for low- and middle-income consumers. For low- and middle-income Americans, the cracks truly start to show “when you start losing jobs,” Swonk said, pointing out that the Trump administration is proposing cuts to programs that assist low-income families and that thousands of jobs have already been lost as a result of widespread layoffs in the federal government.
“The Fed has been forced to keep interest rates higher for longer in order to cool off inflation because the wealthy are doing so well financially and are therefore able and willing to spend strongly,” Mark Zandi, chief economist at Moody’s Analytics, told MarketWatch. “The financial brunt of the higher rates has been borne by lower- and middle-income households, at least to date.”
This truth was brought up by U.S. Treasury Secretary Scott Bessent on CNBC on Friday. 40% to 50% of consumption is accounted for by the wealthiest 10% of Americans. “And that equilibrium is unstable,” he stated. “The bottom 50% of working Americans have gotten killed.”
“I used to adore coffee shops or Starbucks.”
Even with a $140,000 household income, Katie Harley, a South Carolina mother of two, said her family is reducing expenditures to pay off roughly $20,000 in credit card debt, college loans, and a car loan.
Harley’s family used to dine out four or five times a week, but now they only do so twice a week—on Mondays at Chick-fil-A and on Sundays at a Mexican restaurant—as part of a low-spend year, a popular financial challenge to cut expenses. She admitted, “I used to love Starbucks (SBUX) or a coffee shop,” but each visit cost her roughly $8. Harley now makes her own coffee at home.
She used to frequently buy toys, clothing, and hair care items that her family didn’t really need at Target (TGT), but she no longer makes impulsive purchases there. She now trades in worn clothing for store credit at a nearby buy-and-sell store instead. Harley also terminated her subscriptions to AppleTV (AAPL), Hulu (DIS), and Paramount+ (PARA), three streaming services.
According to Harley, her family is now spending thousands of dollars less a month than they were previously. Thankfully, she noted, “I really don’t feel like we have gone without” thus far in spite of these significant adjustments to their budget.
Even though each of the individual findings about low- and middle-class Americans’ spending has decreased—such as buying fewer pizzas and hamburgers, keeping their cars longer, or switching to less costly vacations—may seem unimportant, taken as a whole, they give the impression that spending has decreased for everyone except the wealthiest.
According to Robert Frick, chief economist at Navy Federal Credit Union, “you are seeing this kind of hollowing out of the economy, in which middle- and lower-income Americans are not enjoying as much.”
According to a consumer sentiment study, a staggering 55% of people in the bottom third of the American income distribution believe that their situation has gotten worse over the past five years. Approximately 63% of families in the top third of income brackets claim to be in a better financial situation.
According to Frick, the rate of inflation for needs is almost double that of overall inflation. Due to this, middle-class and lower-class families now have to spend a larger portion of their income on essentials like food, housing, and transportation, frequently using credit cards to make purchases. After the temporary government epidemic benefits ended, the agony increased. As a result of their more stable employment, low mortgage rates, increasing property values, and growing retirement assets, upper-class families have benefited, leading to the term “401(k) millionaire.”
Stephen Rogers, managing director of the Deloitte Insights Consumer Industry Center, told MarketWatch that middle-class customers often have the weakest purchasing aspirations. They “are all significantly weaker compared to 2021,” according to Deloitte surveys this year, regarding their intentions to purchase the majority of discretionary goods, including clothing, technology, personal care products, home furnishings, and recreational activities.
Meanwhile, during the last two years, there has been a significant increase in late credit card payments. The New York Federal Reserve reports that among Americans in the lowest income band, the percentage of auto loan payments that are past due by more than 90 days has increased to its highest level in at least eight years.
According to Morning Consult experts, savings gaps are also becoming apparent, which may be a sign of most households’ deteriorating financial situation. While lower-income households report feeling more gloomy about their capacity to cover an emergency with cash, high-income adults are handling emergency needs without debt at higher rates than they did two years ago.
“Going forward, lower-income households may find it more difficult to continue to bear these [emergency] costs, especially at a time when re-heating inflation risks are mounting,” Morning Consult stated in its February study.
Consumers with lower and moderate incomes are more uncertain.
Indications that the ordinary American’s budget won’t go very far have begun to appear on Wall Street. Restaurant chains such as Domino’s (DPZ), McDonald’s (MCD), and Bloomin’ Brands (BLMN) have lately informed investors that their businesses are suffering due to the financial strains placed on their low- and middle-class clientele, which has compelled them to prioritize value.
Philip N. Jefferson, the vice chair of the Federal Reserve, stated in a speech last month that although retail expenditure growth was comparable across income categories before to the epidemic, it has changed throughout the past four years. “While, in aggregate, household balance sheets are indeed strong, low- and middle-income households, and those with lower credit scores, may be stretched,” he stated.
