Americans are spending down their savings
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Lower-earning Americans are increasingly strapped for cash: On recent corporate earnings calls, some CEOs warned that their customers are struggling to deal with rising gas prices and higher inflation.
Why it matters: That's painful on an individual level, and more broadly it could be a sign of a slowing economy — a warning to investors and a hit to the various companies that sell stuff to people.
Where it stands: "They're literally running out of money at the end of the month," Kraft Heinz CEO Steve Cahillane said in an interview with Bloomberg last week.
- "We're seeing negative cash flows in the lower-income brackets where they're dipping into savings."
- His comments echoed remarks from McDonald's CEO Christopher Kempczinski, who talked about rising gas prices disproportionately hitting low-income consumers. "The pressures there are going to continue," he said.
- Last week, Whirlpool CEO Marc Bitzer said the appliance industry is seeing an industry decline on par with the financial crisis.
By the numbers: Americans are spending down their savings. The personal savings rate was at 3.6% in March — the lowest since the "revenge spending" days of 2022.
- They also feel worse than ever. The University of Michigan's preliminary consumer sentiment reading, out Friday, hit its lowest reading dating back to 1952 — the previous low was in April.
Yes, but: A low savings rate could also be a sign that Americans feel comfortable spending.
- And there are at least some low earners trying to hold on to what they've got in the bank.
- People who spend less than $1,000 a month are now holding more savings in their checking accounts, "as they seem to be bracing for higher prices to remain in place for a while," Heather Long, chief economist at Navy Federal Credit Union, said in a note Friday.
State of play: For lower-income households, high gas prices are eating into other spending categories.
- Households earning less than $40,000 cut back on gas buying by 7% in March as prices soared, per research out this month from the Federal Reserve Bank of New York. They likely took public transit a bit more and tried to carpool.
- Still, people need to drive to work and school. The New York Fed found that lower earners still spent 12% more money on gas.
- Higher-income households, meanwhile, reduced gas buying only "modestly."
Flashback: The same split happened back in 2022, when prices spiked after Russia invaded Ukraine — but the gap between high and low earners is now wider, the New York Fed notes.
What to watch: Walmart's next earnings report later this month will be a bellwether.
- In its investor call in February, the company signaled that lower-earning households were hurting. "Wallets are stretched" for those households making less than $50,000, CEO John Furner said.
- Most of the company's sales gains were coming from higher-income families, he said.
- This was before the Iran war sent gas prices up.
Yes, but: These economic woes may be confined to just the lowest earners. Higher-income shoppers are still driving growth at both McDonald's and Walmart, the companies said.
- The latest jobs numbers showed a resilient labor market. GDP growth was solid, and consumer spending is holding up.
The bottom line: This is the K-shaped economy in action: The rich keep the overall picture looking good, while underneath the headline numbers, it looks bleak.
