Opinion: A tale of two American consumers

The government measures all sorts of consumer behavior: consumer spending, consumer confidence, consumer sentiment. The business pages are filled with analyses about whether consumers are buying or holding back, flush or poor.

But there’s not one American consumer. There are really two — and increasingly they live in different worlds.

Lower-income consumers are paid in hourly wages, which have stagnated for years when adjusted for inflation. The pay of lower-income consumers is now rising a bit faster than inflation, but for most of the last three years it had not — which meant their paychecks bought less and less.

Lower-income consumers have blown through their pandemic savings. They’re now racking up credit card and other loan debt and are being squeezed by high interest rates on that debt.

The average American household now owes $7,951 in credit card debt. That average includes a large number of higher-income consumers with little or no debt. While there’s no reliable data on the credit card debt of lower-income consumers, you can assume it’s much higher than the average. Also note that the average interest rate on credit card debt is now 20.66%.

There has also been a surge in “buy now, pay later” programs that could be masking an even bigger lower-income consumer debt problem.

Not surprisingly, parts of the economy most dependent on purchases by lower-income consumers are under stress. Mass-market brands — such as the fast-food companies McDonald’s, KFC and Starbucks — are reporting that consumers are pulling back on spending.

Ramon Laguarta, PepsiCo’s CEO, says, “The lower-income consumer in the U.S. is stretched,” adding that this type of customer “is strategizing a lot to make their budgets get to the end of the month.” (Ironically, PepsiCo has so much monopoly power it’s been able to raise prices, blame inflation, shaft consumers, and score record profits.)

Higher-income consumers are in a different world. Mostly college educated with jobs in the knowledge economy, they’re the richest 10%. High interest rates don’t affect them, because they tend to have comparatively little mortgage, car, student loan, or credit card debt.

These higher-income consumers also own more than half of all shares of stock owned by Americans. So, as corporations pump up the stock market with stock buybacks, these higher-income consumers are scoring healthy gains.

Which is why the parts of the economy that cater to higher-income consumers are soaring. Airlines and hospitality are doing well. Higher-income consumers are busily booking flights, hotel rooms, and tables at pricier restaurants. And they’re buying big-ticket items.

Even Walmart is shifting to higher-income consumers. Over the past three years, households earning over $100,000 have provided the biggest gains in Walmart’s market share. Its merchandise now includes AirPods, MacBook Air, and other items that “appeal to a high-income demographic,” according to John David Rainey, Walmart’s chief financial officer. “The more we move into that space … the more we’re going to retain this cohort.”

Given that lower-income consumers constitute the majority of Americans, the stark differences between them and higher-income consumers help explain why voters continue to give President Biden poor marks on the economy.

This is “an economy of the haves and have-nots,” Michael Reid, an economist for RBC Capital Markets, told the New York Times’ DealBook. “The haves just have so much more spending power.”

Even as convicted felon Trump promises huge tax breaks to America’s haves — including the biggest corporations and richest people in America — he’s channeling the anger, anxiety and frustrations of the have-nots.

— Robert B. Reich is a syndicated columnist with Tribune Content Agency.


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