It is more shocking to see which group has the worst outlook: households with higher incomes.
According to the University of Michigan Surveys of Consumers, February saw a dip in consumer sentiment that was ten years long. The decline was almost exclusively concentrated among households with at least $100,000. The university stated that this group saw a drop in sentiment of almost 13%. This was due to concerns from higher-income Americans regarding rising interest rates and the impact inflation has on their personal finances.
Consumer sentiment fell to 62.8 points in February, compared with 76.8 points one year ago.
All Americans are affected by rising U.S. costs. Lower-income households have less budget flexibility to deal with the increasing cost of daily items such as gasoline and food. However, higher-income households might be more aware of the effects of inflation because they haven’t seen the same income gains as lower-income workers in recent years. This means that their “real wages” (or wages after inflation) are decreasing .
Stock market turmoil is also affecting high-income workers’ retirement plans and investments. This anxiety fuels their anxiety. Only 4 out 10 Americans with the lowest incomes have access to retirement plans. This compares with 8 out 10 for those who earn the most.
Rising inflation fears could lead to slower economic growth, as “an optimist consumer is more comfortable borrowing and spending,” stated Charlie Wise (Senior Vice President of Research and Consulting at TransUnion), who has been studying consumer trends since the pandemic.
He said, “And one [consumer] is pessimistic” and added that he was likely to pull back.
Inflation worries
According to TransUnion’s new consumer Pulse released Wednesday, inflation is America’s biggest economic worry. The study revealed that higher-income Americans are more concerned about inflation than those with lower incomes.
The study showed that 66% of people who earn more than $100,000 are concerned about inflation and 61% of households with less than $50,000. The polling was conducted before Russia invaded Ukraine. Therefore, the potential inflationary effect on gas prices and other goods was not reflected in the survey.
Wise stated that lower-income consumers are less concerned, but the question is whether they understand inflation. “There is a level that correlates with people’s income and financial fluency.”
Low-wage workers are also in demand and this is pushing up their wages at higher rates than white-collar employees. According to the latest government data, the average hourly earnings of workers in hospitality and leisure — such as waiters and hotel workers — increased 13% in January compared to a year ago. This kept their wages ahead of the 7.5% increase in inflation during the same period.
Workers in the financial industry, such as real estate agents and bankers, saw their salaries rise by 4.8% during the same time. These workers have seen their purchasing power and incomes shrink due to inflation.
Ratings for President Biden
This is affecting how voters perceive President Joe Biden. According to new CBS polling, his approval ratings on inflation have fallen. The poll revealed that 6 out 10 Americans think the economy is in poor shape.
The nation is regaining its strength through many economic measures. In January, the unemployment rate in the country was 4.4%, which is not too far from the pre-pandemic levels. Most economists predict a growth rate of at least 3.3% in wages.
TransUnion’s Wise stated that it’s inflation that is coming out. “There are very few people who don’t buy groceries or gas. It’s inevitable and it’s really showing in the numbers.
In Tuesday’s State of the Union address Mr. Biden acknowledged the fact that inflation is reducing household income. He pledged to reduce spiraling costs and said that his top priority was keeping prices under control. He suggested measures like increasing competition between U.S. suppliers and cracking down against companies that overcharge consumers.
However, consumers won’t see any relief soon. Economists expect inflation to remain high through at least the first half 2022.
“A few cracks in the road”
Winnie Hewett (68 years old) is one of those who are feeling the effects of inflation. She lives in Mission Viejo, California and describes her family as being upper middle-class. Her gas bill has nearly doubled in the past year, and her rent-a-car costs have risen to $1,200 per month, up from $800 when she visited her mother in North Carolina.
Hewett stated that she has reduced her grocery expenses by shifting some of her spending, particularly with her younger child in college. She said that she didn’t blame Mr. Biden because of inflation. She believes it was due to a combination supply-chain disruptions as well as the influx federal stimulus money, which bolstered household finances while fueling demand for goods.
Hewett stated, “That inflation was on the horizon — it wouldn’t have mattered who was elected to office.”
She has also seen some of her retirement assets decline in value. She expects that Russia’s invasion will cause more market turmoil.
Hewett stated that “probably we have a few gaps in the road in front us”, but she is optimistic that inflation and other issues will improve over the course of the year. “If you live long enough you will see the ups & downs both internationally and at home. “I believe we will bounce back,” I say.
