Low-income Americans slash spending, a worrying sign for the economy

Although investors cheered the Federal Reserve’s recent rate cut and the stock market has kept powering along, the economy is facing growing headwinds on one crucial front — consumer spending.

Americans’ long-running spending boom is showing signs of faltering as consumers of all income levels scale back and hold out for discounts, leaving the economy on shaky ground. This shift is most pronounced among lower-income consumers, who are disproportionately vulnerable to rising prices and other economic pressures eroding their purchasing power, industry analysts say.

“U.S. consumer spending is not just softening overall, it’s doing so in a fragmented way … and that’s a real problem,” said Claire Li, a Moody’s vice president of credit strategy. “If the benefits and the pressures are not shared broadly, then we’re not looking at a balanced or a healthy state of the U.S. consumer base.”

Working-class Americans — already up against waning wage growth and rising housing and electricity costs — are easily burned by any increase in grocery prices and tariff-fueled increases on household staples, apparel and furniture, according to recent Moody’s Ratings report. They’re increasingly dipping into their savings, racking up more debt, and pulling back on discretionary spending, according to recent government data, analyst reports and retail executives.

Meanwhile, those in the middle- and upper-income tiers are being more strategic about when to make big purchases, buying in bulk and shopping at cheaper retailers, said Mickey Chadha, a Moody’s retail analyst and vice president. Walmart, Dollar General and Dollar Tree have told investors that they’ve picked up share among wealthier consumers looking for bargains. And sales in the luxury sector are weakening as customers grow increasingly fed up with brands charging higher prices without notably improving quality and offering compelling new merchandise.

READ MORE HERE