5 economic signals suggest U.S. consumers are feeling the strain
As the economy continues to face challenges, American consumers are feeling the pinch of the highest inflation rate in nearly three years. With consumer spending driving about 70% of U.S. economic activity, concerns are rising about a potential slowdown if households start to pull back due to rising energy prices.
Glenn Williams, CEO of Primerica, highlighted the impact of elevated gas prices on middle-income families, stating that it is a necessity for most households and not optional. Inflation tends to hit low- and middle-income households the hardest, as they spend a larger portion of their income on essentials like gas and food.
While consumer spending is still growing and overall financial stability remains solid, some warning signs are emerging. Income growth is lagging behind inflation, with household incomes decreasing by over 1% in the past year after adjusting for inflation. This decline in real after-tax income is the largest since the Great Recession in 2009.
Rising Credit Card Delinquencies
Credit card delinquencies have reached their highest level since 2011, indicating that more consumers are struggling to meet their financial obligations. About 13% of all credit card accounts were in arrears in the first quarter, according to data from the Federal Reserve Bank of New York.
Savings Rate at a 22-Year Low
The personal savings rate dropped to 2.6% last month, the lowest in two decades. The decrease from 5.5% a year ago is a concerning trend, with larger tax refunds helping to temporarily support households but expected to be exhausted by July.
401(k) Loans and Hardship Withdrawals
More Americans are resorting to loans and hardship withdrawals from their 401(k) accounts, with Fidelity reporting an increase in both types of transactions. The percentage of Fidelity accounts with outstanding loans rose in the first quarter, as did hardship withdrawals for serious financial issues.
Cutting Gas Purchases
The surge in gasoline prices this year is impacting households differently based on their income levels. Lower- and middle-income households have been cutting back on gas consumption, delaying major purchases, maintenance, or scaling back savings. High-income households, on the other hand, have not significantly changed their driving habits in response to rising fuel prices.
As some retailers observe signs of financial strain among consumers, Walmart noted a decrease in the number of gallons customers are filling up with at their fuel stations. The CFO of Walmart, John David Rainey, highlighted this as an indication of financial stress among consumers.
