Inflation divide: the rich splurge, the poorest fall back
Americans at the bottom of the income scale are again struggling to make ends meet.
A confluence of factors — the expiration of federal stimulus checks and soaring inflation on basics like gasoline and food — are driving an even wider gap between the haves and have-nots.
While wealthier shoppers continue to splurge, lower-income shoppers have pulled back faster than expected over the past two months. They focus on the necessities while turning to less expensive items or less expensive stores. And they only buy a few at a time.
It’s a reversal from about a year ago, when low-income shoppers, fueled by government money and supported by wage increases, could spend more freely.
Kisha Galvan, a 44-year-old mother of eight aged 9 to 27, was able to shop for the week and buy extras like clothes and shoes at Walmart for her children last year.
But without pandemic-related government support and near-40-year inflation, she buys more canned goods and depends on the local food pantry several times a week instead of once a week.
“I shop from meal to meal,” said the Rockford, Illinois resident, who has lived with a disability for 15 years. “Before, we didn’t have to worry about what we were going to get. We’re just going to get him.”
The deep spending divide was reflected in the latest round of quarterly results from retailers. At the higher end of the spectrum, Nordstrom and Ralph Lauren saw stronger-than-expected sales as their well-heeled buyers returned to pre-pandemic routines. Lululemon also reported strong quarterly sales of its expensive sportswear.
But at the other end, Walmart customers are turning to cheaper lunch meats and half gallons of milk from full gallons. Kohl’s, a mid-priced department store, said its customers are spending less with each visit. And Gap cut its annual financial outlook, specifically citing inflationary pressure at its discount chain Old Navy.
Dollar Tree and Dollar General, which historically benefit from lower buyer prices during tough economic times, raised their selling outlook last month. Meanwhile, discounter Big Lots suffered a sharp drop in sales over the past quarter, noting reductions in items like furniture.
“We are now in a new chapter where high inflation significantly limits consumers’ ability to make discretionary purchases, especially high-priced items,” Big Lots CEO and President Bruce K. Thorn told analysts. at the end of last month. Americans are living paycheck to paycheck again.”
The decline in low-income buyers has not affected overall spending, which is still on the rise. In April, the government said retail sales outpaced inflation for a fourth consecutive month, a reassuring sign that consumers – the main drivers of the US economy – continue to provide vital support and help ease concerns. about the proximity of a recession.
But analysts think even affluent buyers could pull back if the stock market continues to weaken. Marshal Cohen, chief industry adviser at market research firm The NPD Group Inc., said the stock market is “psychologically” affecting high-income buyers and more losses on paper could reduce them.
The spending mood has changed since last October and November, when the Fed conducted a survey and found that nearly eight in 10 adults are “doing well or living comfortably” when it comes to their finances in 2021, the highest proportion. higher to say so since the survey began in 2013. For those earning less than $25,000, the proportion who said they were doing at least well rose from 40% to 53%.
But inflation has taken a bigger bite out of personal budgets and wiped out some wage gains, especially for those earning less. The national average cost of a gallon of gas, for example, rose to $4.76 from $4.20 a month ago and a painful 56% from a year earlier, according to AAA.
At the Northern Illinois Food Bank, which feeds people in 13 counties, including Galvan and his family, the average monthly number of visits rose to more than 400,000 from February to April, from 311,000 from July to September. , according to President and CEO Julie Yurko.
Economy-wide, median wages jumped 6% in April from a year earlier, according to the Federal Reserve Bank of Atlanta. But even though it was the largest increase since 1990, it was still below the inflation rate of 8.3%.
Meanwhile, one-fifth of the poorest Americans have exhausted the savings they had accumulated during the pandemic in part through stimulus checks, child tax credit payments and higher wages, according to the calculations. of Jeffries, an investment bank. American bank accounts. The other four-fifths of U.S. households still have a large stock of additional savings since the pandemic, much of which is held by the top-fifth.
Inflation plays out differently within businesses that cater to buyers with varying income levels.
Michelle Gass, CEO of Kohl’s, said some shoppers opted for high-end brands like Tommy Hilfiger and Calvin Klein, while others opted for lower-priced store brands. Macy’s has improved its full-year outlook based on the spending habits of its wealthiest shoppers, but its customers with median household incomes of $75,000 and below are turning more to its lower-priced brand.
The current environment makes it difficult for retailers to pass on higher costs. Macy’s, for example, was pushed back after raising prices for some casual wear and home accessories.
“We’re definitely seeing some hesitation at some price points,” Macy’s CEO Jeff Gennette told analysts during the company’s earnings call recently. “We made adjustments there.”
For the Northern Illinois Food Bank — like many food banks — food costs are rising amid dwindling donations.
“Inflation and rising food prices mean the food bank has to make tough choices about our budget,” Yurko said. “What foods can we consistently provide and what foods can we only provide if given to us?”
Rugaber reported from Washington.
Follow Anne D’Innocenzio: http://twitter.com/ADInnocenzio
Follow Chris Rugaber: http://twitter.com/ChrisRugaber