Americans on the lowest income levels are again finding it difficult to make ends work.
An amalgamation of factors, including the expiration federal stimulus checks and the surging inflation on staples such as food and gas, is driving an even larger wedge between the haves & have-nots.
Wealthier shoppers still splurge but low-income shoppers are pulling back quicker than expected over the past two months. They are focusing on the necessities and turning to less expensive or cheaper products. They are also buying very little at a given time.
This is a complete reverse of what happened a year ago, when low-income shoppers were able spend more freely because they had access to money from the government.
Kisha Galvan (44-year-old mother to eight children ranging in age from 9 to 27) was able to stockpile groceries for the week and purchase extras at Walmart last year.
She is now buying more canned foods and relying on the local food pantry many times per week, despite the lack of pandemic-related government support.
Rockford resident, who has been living on disability for 15 years, said, “I shop meal-to-meal.” “Before, there was no need to worry about what we would get. It’s all about getting it.”
Retailers’ latest quarterly earnings showed the deep division in spending. At the high end of the spectrum, Nordstrom and Ralph Lauren reported stronger-than-expected sales as their well-heeled shoppers returned to pre-pandemic routines. Lululemon reported strong quarterly sales for its expensive athletic wear.
Walmart customers are switching from full gallons to half-gallons milk and cheaper lunch meats. Kohl’s, a department store at a middle price, stated that its customers are spending less each time they visit. Gap also lowered its annual financial outlook due to inflation pressure at Old Navy, its low-priced chain.
Dollar General and Dollar Tree, who historically have seen shoppers trade down in difficult economic times, increased their sales outlooks last month. Big Lots, a discount retailer, saw sharp sales declines in its latest quarter due to cutbacks in furniture.
Late last month, Big Lots CEO and President Bruce K. Thorn stated to analysts that “we are now in an entirely new chapter” where high inflation has severely limited consumers’ ability to make discretionary purchases of expensive items. “We know that many Americans now are once again living paycheck-to-paycheck.”
Overall spending is up despite the pullback in low-income shoppers. The government reported that retail sales outpaced inflation in April for the fourth consecutive month. This is a positive sign that consumers, who are the main drivers of America’s economy, continue to provide vital support, helping ease fears that there might be a recession.
Analysts believe that even wealthy shoppers may have to cut back if the stock markets continues to fall. Marshal Cohen, chief market advisor at market research firm NPD Group Inc. said that the stock market affects shoppers with higher incomes “psychologically” and that more losses on paper could cause them to cut back.
Since 2013, the Fed has seen a shift in spending habits. In October and November, a survey was conducted and almost 8/10 adults said they were “doing okay” or “living comfortably” with their finances in 2021. This is the highest percentage since 2013. The proportion of those who said they were doing at most okay for those with less than $25,000 income jumped from 40% to 53%.
Inflation has taken a larger bite out of personal finances and wiped out some wage gains, particularly for those with lower incomes. AAA reports that the national average price of a gallon has increased to $4.76, up from $4.20 a month earlier and by 56% compared to a year ago.
According to Julie Yurko, president and CEO of the Northern Illinois Food Bank which provides food for people in 13 Illinois counties, Galvan and her family were visited more than 400,000 times per month in February and April. This compares to 311,000 visits in the July and September periods.
