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US economic outlook split between recession, jobs and inflation

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  • The economy affects Americans differently, depending on their income.
  • That’s showing up in corporate earnings as brands report low-income shoppers are holding back while luxury goods thrive.
  • It all points to another iteration of the K-shaped economy.

As fears of a recession grow, American economic conditions are moving in two directions.

It shows in recent company earnings, consumer debt measurements, and data on who lives paycheck to paycheck. While low-income shoppers are frugal and rely on credit cards, their wealthy contemporaries are still spending money on vacations and luxury goods.

Simon Properties, the largest owner of shopping malls in the United States, said Monday that while JC Penney shoppers are cutting back on spending, others are continuing to shop at luxury stores such as Brooks Brothers.

At Molson Coors, more beer drinkers flocked to cheaper brands like Keystone Light and Miller High Life, but there was also strong demand for pricier drinks like Blue Moon and Peroni.

At Chipotle, typical low-income consumers are “definitely buying less,” said CEO Brian Niccol. But high-income customers are ordering more often.

The McDonald’s CFO said the company “has customers, especially low-income customers, swapping for better value products and less combo menus.”

Meanwhile, more and more people are piling up credit card debt, looking for cheap brands, and doing extra work like driving an Uber.

Delta, on the other hand, is seeing increased demand for its premium tickets, presumably from wealthy travelers.

“I think what we’re seeing is a bit of a fork,” Kohl CEO Michelle Gass said in May. “So some of our customers are switching to brands like Calvin, Tommy, Harley, Levi’s, and more premium brands, and many of the new products we’ve introduced. Percentage of customers going private label.”

Americans live in two parallel economies

Wealth inequality has only widened in recent years, but early policies during the pandemic have provided a temporary reprieve. Expanding unemployment benefits, his three rounds of stimulus, bans on evictions, and low interest rates have helped some low-wage workers succeed. However, these are all over.

For low-income Americans, the days of labor shortages are few and far between. Job openings are on the decline, unemployment claims are on the rise, and inflation remains near record levels, wiping out much of their income gains.

According to a LendingClub report, 61% of Americans were living paycheck to paycheck in June. Data from the New York Federal Reserve shows that while most borrowers are in a position to pay, this is much more difficult for low-income households than for households earning more than $50,000 a year.

Wealthier Americans seem to be doing well. Inflation is a nuisance, but many people have accumulated enough savings to continue spending, and given unemployment remains low, most people can rely on a steady source of income. increase.

All of this marks another iteration of the K-shaped economy, with two separate narratives playing out between low-income and wealthy consumers. As the economy continues to slow, Americans’ quality of life will depend, perhaps more than usual, on which side of the story they’re on.