You probably know — because I say it often enough — that consumer spending accounts for about two-thirds of U.S. economic activity.
What you may not know is that while high-income Americans account for about a third of consumers, they’re responsible, in dollar terms, for roughly 66% of total spending.
So it’s more than a little alarming that a new survey from CNBC and Momentive finds that Americans with incomes of at least $100,000 are cutting back, or may soon do so, in numbers that are not far off from similar belt-tightening by lower-income groups.
“People making six-figure incomes are almost as worried about inflation as people making half as much — and they are just as likely to be taking steps to mitigate its effect on their lives,” Laura Wronski, senior manager of research science at Momentive, tells CNBC.
“Inflation is a problem that compounds over time, and even high-income individuals won’t be insulated from the second- and third-order effects of price increases,” she says.
With consumer prices now rising at the fastest clip in 40 years, many households are rethinking household budgets.
It’s estimated that as much as 60% of American workers are now living paycheck to paycheck.
But if well-to-do folk also start economizing, that places a significant strain not just on growth but also our ongoing recovery from the pandemic.
The 68% of high-income consumers who say higher prices are forcing them to rethink financial decisions is lower than the 82% of Americans with incomes of $50,000 or less who feel the same way.
Still, it’s a majority. And that has serious implications for virtually all businesses — from retailers and restaurants to car dealers and travel-related industries.
“The American consumer is in a dark mood,” Mark Zandi, chief economist at Moody’s, tells CNBC.
This doesn’t necessarily mean the economic sky is falling. It’s entirely possible that an expected series of rate hikes by the Federal Reserve will halt runaway inflation and ease the economy back to normal footing.
But consumer spending is key. And if the consumers with the most disposable wealth are cutting back, well, that’ll just make a difficult situation considerably worse.