MW Most Americans can't afford life anymore - and they just don't matter to the economy like they used to

By Venessa Wong and Jeffry Bartash

Years of elevated prices have strained all but the wealthiest consumers, and low- and middle-income Americans say something needs to change

Life for Naomi Burns and her family of six is not easy. She and her boyfriend are raising four children in a small town about an hour from Portland, Ore., largely on his $65,000 annual salary as a traffic-control flagger. Burns mostly cares for their children, but in order to make ends meet, she also earns nearly $1,000 per month from her work on social media and delivering for DoorDash.

"He brings home about $680 a week, and we need something like $1,000 a week just to break even and have grocery money and pay all of our bills," Burns told MarketWatch, adding that the family does not qualify for public-assistance benefits. "My side hustles are actually what makes it so that we can survive."

Burns tries to stretch every dollar to maximize their quality of life on the family's limited income. That means meticulous meal planning, monitoring food sales and using coupons and store points at the local Safeway to keep their grocery bill as low as possible - Burns said she recently got $152 worth of groceries for $20 using coupons and discounts. The family budgets $100 per week for groceries.

On occasion, there's money left over to go out to a fast-food restaurant for a treat. The four kids usually split three $5.99 meals at Taco Bell $(YUM)$ or two $5 meals at McDonald's $(MCD)$, for which Burns accumulates rewards points for future discounts.

Burns said she has no money to spend on herself or to save for the future. She doesn't wear makeup and has no skin-care routine, for instance, saying, "I just can't afford it." As prices have steadily climbed over the last three years, Burns said that no matter how intentional she is with the family's money, "we go back and forth between barely making enough to be comfortable but not having anything extra, and not making enough."

For decades, the American consumer has powered not only the world's biggest economy but the entire global economy. Increasingly, however, low- and even middle-income American consumers have felt the effects of inflation. They are making tough decisions about discretionary spending, like a restaurant meal or an impulse toy purchase, and face even harder choices when it comes to expenses like vacations or cars. As a result, low- and middle-income Americans now make up a smaller part of the overall U.S. economy than they have done in a very long time.

The bottom 90% of earners - those who make less than $250,000 a year - are now responsible for 50.3% of all consumer spending in the country, data from Moody's Analytics $(MCO)$ show. Thirty years ago, they accounted for 64% of U.S. spending. As the rich make up an increasing share of the U.S. economy, bolstering overall consumer spending, middle- and low-income Americans cut their spending from fall 2023 to fall 2024, Moody's found.

As a result, some companies have put high earners at the center of their business plans. Carmakers, for instance, have been focusing on more profitable models, pushing up the average price of a new car to almost $50,000 and the average age of new-vehicle buyers to 52, according to data from Cox Automotive.

Having high-income earners, who are less sensitive to prices, driving so much spending has helped keep inflation high, KPMG chief economist Diane Swonk told MarketWatch. In January, inflation came in at 2.6%, according to the latest data from the Bureau of Economic Analysis, still above the Federal Reserve's 2% target. Prices are up 13% over the last three years, based on the consumer-price index, and 23% in the last five years.

While inflation has made life harder for low- and middle-income consumers, their financial picture could get even worse, with tariffs expected to cost the average household $1,200 a year, according to the Peterson Institute for International Economics. The cracks really begin to show for low- and middle-income Americans "when you start losing jobs," Swonk said, noting that mass layoffs in the federal government have already led to the loss of thousands of jobs and that the Trump administration is proposing cuts to programs that support low-income families.

"That the well-to-do are doing so well financially and thus able and willing to spend strongly has forced the Fed to keep interest rates higher for longer to cool off inflation," Mark Zandi, chief economist at Moody's Analytics, told MarketWatch. "The financial brunt of the higher rates has been borne by lower- and middle-income households, at least to date."

U.S. Treasury Secretary Scott Bessent pointed to this reality Friday on CNBC. The "top 10% of Americans are 40% to 50% of consumption. And that is an unstable equilibrium," he said. "The bottom 50% of working Americans have gotten killed."

Read more: A $100,000 salary no longer buys you a middle-class lifestyle. Here's why it costs so much more now.

'I used to love Starbucks or a coffee shop'

Katie Harley, a parent of two children in South Carolina, said that even with a household income of $140,000, her family is cutting back on spending in order to pay down about $20,000 in credit-card debt, as well as student loans and a car loan.

As part of a low-spend year, a popular financial challenge to spend less money, Harley's family now only eats out twice a week - Mondays at Chick-fil-A and Sundays at a Mexican restaurant - compared with four to five times a week previously. "I used to love Starbucks $(SBUX)$ or a coffee shop," she said, but she would spend about $8 on each visit. Harley brews her coffee at home now.

She no longer makes impulse purchases at Target $(TGT)$, where she used to regularly buy clothes, toys and hair-care products that her family didn't particularly need. Instead, she now goes to a local buy-and-sell store, where she trades in used clothes for store credit. Harley also canceled subscriptions for streaming services Paramount+ $(PARA)$, Hulu $(DIS)$ and AppleTV $(AAPL)$.

As a result, her family is spending thousands of dollars less per month than they did before, Harley said. Fortunately, despite these big changes to their budget, "I really don't feel like we have gone without" so far, she said.

While each individual observation about low- and middle-income Americans no longer spending like they did in the past - buying fewer burgers and pizzas, holding onto their cars longer, trading down to less expensive vacations - may seem innocuous, together they add up to an overall sense that spending by all but the wealthiest has dropped.

"You are seeing this kind of hollowing out of the economy, in which middle- and lower-income Americans are not enjoying as much," said Robert Frick, the top economist at Navy Federal Credit Union.

A whopping 55% of those in the bottom third on the American income scale say they are doing worse than they were five years ago, a survey of consumer sentiment shows. Meanwhile, some 63% of families in the top third of incomes say they are better off.

Frick noted that the inflation rate for necessities is about twice as high as overall inflation. This has forced middle- and lower-income families to devote a greater share of their income to necessities such as food, rent and transportation - often relying on credit cards for purchases. The pain got worse after temporary government pandemic benefits ran out. Meanwhile, upper-income families have prospered from more secure jobs, low mortgage rates, rising home values and surging retirement funds - giving rise to the term "401(k) millionaire."

"We're generally seeing the weakest spending intentions among middle-income consumers overall," Stephen Rogers, managing director at Deloitte Insights Consumer Industry Center, told MarketWatch. Their intentions to buy most discretionary goods - home furnishings, recreation, clothing, electronics, personal-care items and household goods - "are all significantly weaker compared to 2021," according to Deloitte surveys this year.

At the same time, late credit-card payments have climbed sharply over the past two years. The percentage of car-loan payments that are more than 90 days past due has risen to the highest level in at least eight years among Americans in the lowest income bracket, data from the New York Federal Reserve shows.

Gaps are also showing up in savings, possibly reflecting worsening finances for most households, Morning Consult researchers said. High-income adults are covering emergency expenses without debt at higher rates than two years ago, while lower-income households say they feel more pessimistic about their ability to cover an emergency with cash.

"Going forward, lower-income households may find it more difficult to continue to bear these [emergency] costs, especially at a time when re-heating inflation risks are mounting," Morning Consult warned in a February report.

Related: As the wealthy keep spending, here's why the middle class is in for a tough 2025

Uncertainty is worse for low- and middle-income consumers

On Wall Street, signals have started to emerge that the average American's budget won't stretch much further. Restaurant companies including Domino's $(DPZ)$, McDonald's (MCD) and Bloomin' Brands $(BLMN)$ have recently told investors that financial pressures on low- and middle- income customers are negatively impacting their businesses, forcing them to focus on value.

In a speech last month, Federal Reserve Vice Chair Philip N. Jefferson said that while retail spending growth was similar across income groups before the pandemic, it has diverged over the last four years. "While, in aggregate, household balance sheets are indeed strong, low- and middle-income households, and those with lower credit scores, may be stretched," he noted.

The signs of this stress may not be immediately obvious in major economic data reports.

MW Most Americans can't afford life anymore - and they just don't matter to the economy like they used to

By Venessa Wong and Jeffry Bartash

Years of elevated prices have strained all but the wealthiest consumers, and low- and middle-income Americans say something needs to change

Life for Naomi Burns and her family of six is not easy. She and her boyfriend are raising four children in a small town about an hour from Portland, Ore., largely on his $65,000 annual salary as a traffic-control flagger. Burns mostly cares for their children, but in order to make ends meet, she also earns nearly $1,000 per month from her work on social media and delivering for DoorDash.

"He brings home about $680 a week, and we need something like $1,000 a week just to break even and have grocery money and pay all of our bills," Burns told MarketWatch, adding that the family does not qualify for public-assistance benefits. "My side hustles are actually what makes it so that we can survive."

Burns tries to stretch every dollar to maximize their quality of life on the family's limited income. That means meticulous meal planning, monitoring food sales and using coupons and store points at the local Safeway to keep their grocery bill as low as possible - Burns said she recently got $152 worth of groceries for $20 using coupons and discounts. The family budgets $100 per week for groceries.

On occasion, there's money left over to go out to a fast-food restaurant for a treat. The four kids usually split three $5.99 meals at Taco Bell (YUM) or two $5 meals at McDonald's (MCD), for which Burns accumulates rewards points for future discounts.

Burns said she has no money to spend on herself or to save for the future. She doesn't wear makeup and has no skin-care routine, for instance, saying, "I just can't afford it." As prices have steadily climbed over the last three years, Burns said that no matter how intentional she is with the family's money, "we go back and forth between barely making enough to be comfortable but not having anything extra, and not making enough."

For decades, the American consumer has powered not only the world's biggest economy but the entire global economy. Increasingly, however, low- and even middle-income American consumers have felt the effects of inflation. They are making tough decisions about discretionary spending, like a restaurant meal or an impulse toy purchase, and face even harder choices when it comes to expenses like vacations or cars. As a result, low- and middle-income Americans now make up a smaller part of the overall U.S. economy than they have done in a very long time.

The bottom 90% of earners - those who make less than $250,000 a year - are now responsible for 50.3% of all consumer spending in the country, data from Moody's Analytics $(MCO.AU)$ show. Thirty years ago, they accounted for 64% of U.S. spending. As the rich make up an increasing share of the U.S. economy, bolstering overall consumer spending, middle- and low-income Americans cut their spending from fall 2023 to fall 2024, Moody's found.

As a result, some companies have put high earners at the center of their business plans. Carmakers, for instance, have been focusing on more profitable models, pushing up the average price of a new car to almost $50,000 and the average age of new-vehicle buyers to 52, according to data from Cox Automotive.

Having high-income earners, who are less sensitive to prices, driving so much spending has helped keep inflation high, KPMG chief economist Diane Swonk told MarketWatch. In January, inflation came in at 2.6%, according to the latest data from the Bureau of Economic Analysis, still above the Federal Reserve's 2% target. Prices are up 13% over the last three years, based on the consumer-price index, and 23% in the last five years.

While inflation has made life harder for low- and middle-income consumers, their financial picture could get even worse, with tariffs expected to cost the average household $1,200 a year, according to the Peterson Institute for International Economics. The cracks really begin to show for low- and middle-income Americans "when you start losing jobs," Swonk said, noting that mass layoffs in the federal government have already led to the loss of thousands of jobs and that the Trump administration is proposing cuts to programs that support low-income families.

"That the well-to-do are doing so well financially and thus able and willing to spend strongly has forced the Fed to keep interest rates higher for longer to cool off inflation," Mark Zandi, chief economist at Moody's Analytics, told MarketWatch. "The financial brunt of the higher rates has been borne by lower- and middle-income households, at least to date."

U.S. Treasury Secretary Scott Bessent pointed to this reality Friday on CNBC. The "top 10% of Americans are 40% to 50% of consumption. And that is an unstable equilibrium," he said. "The bottom 50% of working Americans have gotten killed."

Read more: A $100,000 salary no longer buys you a middle-class lifestyle. Here's why it costs so much more now.

'I used to love Starbucks or a coffee shop'

Katie Harley, a parent of two children in South Carolina, said that even with a household income of $140,000, her family is cutting back on spending in order to pay down about $20,000 in credit-card debt, as well as student loans and a car loan.

As part of a low-spend year, a popular financial challenge to spend less money, Harley's family now only eats out twice a week - Mondays at Chick-fil-A and Sundays at a Mexican restaurant - compared with four to five times a week previously. "I used to love Starbucks (SBUX) or a coffee shop," she said, but she would spend about $8 on each visit. Harley brews her coffee at home now.

She no longer makes impulse purchases at Target (TGT), where she used to regularly buy clothes, toys and hair-care products that her family didn't particularly need. Instead, she now goes to a local buy-and-sell store, where she trades in used clothes for store credit. Harley also canceled subscriptions for streaming services Paramount+ (PARA), Hulu $(DIS.UK)$ and AppleTV (AAPL).

As a result, her family is spending thousands of dollars less per month than they did before, Harley said. Fortunately, despite these big changes to their budget, "I really don't feel like we have gone without" so far, she said.

While each individual observation about low- and middle-income Americans no longer spending like they did in the past - buying fewer burgers and pizzas, holding onto their cars longer, trading down to less expensive vacations - may seem innocuous, together they add up to an overall sense that spending by all but the wealthiest has dropped.

"You are seeing this kind of hollowing out of the economy, in which middle- and lower-income Americans are not enjoying as much," said Robert Frick, the top economist at Navy Federal Credit Union.

A whopping 55% of those in the bottom third on the American income scale say they are doing worse than they were five years ago, a survey of consumer sentiment shows. Meanwhile, some 63% of families in the top third of incomes say they are better off.

Frick noted that the inflation rate for necessities is about twice as high as overall inflation. This has forced middle- and lower-income families to devote a greater share of their income to necessities such as food, rent and transportation - often relying on credit cards for purchases. The pain got worse after temporary government pandemic benefits ran out. Meanwhile, upper-income families have prospered from more secure jobs, low mortgage rates, rising home values and surging retirement funds - giving rise to the term "401(k) millionaire."

"We're generally seeing the weakest spending intentions among middle-income consumers overall," Stephen Rogers, managing director at Deloitte Insights Consumer Industry Center, told MarketWatch. Their intentions to buy most discretionary goods - home furnishings, recreation, clothing, electronics, personal-care items and household goods - "are all significantly weaker compared to 2021," according to Deloitte surveys this year.

At the same time, late credit-card payments have climbed sharply over the past two years. The percentage of car-loan payments that are more than 90 days past due has risen to the highest level in at least eight years among Americans in the lowest income bracket, data from the New York Federal Reserve shows.

Gaps are also showing up in savings, possibly reflecting worsening finances for most households, Morning Consult researchers said. High-income adults are covering emergency expenses without debt at higher rates than two years ago, while lower-income households say they feel more pessimistic about their ability to cover an emergency with cash.

"Going forward, lower-income households may find it more difficult to continue to bear these [emergency] costs, especially at a time when re-heating inflation risks are mounting," Morning Consult warned in a February report.

Related: As the wealthy keep spending, here's why the middle class is in for a tough 2025

Uncertainty is worse for low- and middle-income consumers

On Wall Street, signals have started to emerge that the average American's budget won't stretch much further. Restaurant companies including Domino's (DPZ), McDonald's (MCD) and Bloomin' Brands (BLMN) have recently told investors that financial pressures on low- and middle- income customers are negatively impacting their businesses, forcing them to focus on value.

In a speech last month, Federal Reserve Vice Chair Philip N. Jefferson said that while retail spending growth was similar across income groups before the pandemic, it has diverged over the last four years. "While, in aggregate, household balance sheets are indeed strong, low- and middle-income households, and those with lower credit scores, may be stretched," he noted.

The signs of this stress may not be immediately obvious in major economic data reports.

(MORE TO FOLLOW) Dow Jones Newswires

March 07, 2025 13:28 ET (18:28 GMT)

MW Most Americans can't afford life anymore - and -2-

"The people who show up the most in the data are the people doing the best," said Diane Lim, a director in the U.S. Treasury Department, at a recent conference of the National Association of Business Economics.

From the archives: A $114,000 salary makes you feel poorer than your parents. These 6 metrics show why.

While the overall picture remains largely positive - GDP increased 2.8% in 2024 and unemployment remains at a low 4% - the benefits have not been distributed evenly across income groups. Now many Americans have even more reason to worry as a result of President Donald Trump's tariffs on Canada, Mexico and China. They are anxious about their jobs, their income and the further erosion of their buying power.

That anxiety showed up in the closely watched Conference Board index of consumer confidence, which sank to an eight-month low in February. The tariffs, which went into effect in early March, now threaten further price increases on everything - from food and gas to housing and cars - as the financial pressures on American households mount.

The uncertainty over Trump's policies, like igniting a trade war and showing thousands of government workers the door, shows up not only in sentiment, but in people's spending as well. When future stability is uncertain, "particularly for households that aren't in as good a shape, we know from the research that they tend to trade down, and they try to hunker down," said KPMG's Swonk.

Indeed, Wells Fargo found in a consumer survey that 80% of households earning less than $100,000 plan to cut back on their spending in 2025. Even 57% of high-income households, the survey found, are preparing for the worst and expect to spend less this year.

Those who make less money are being the most intentional, but "Americans are all making real trade-offs," Michael Liersch, head of advice and planning at Wells Fargo, told MarketWatch.

Read more: Generation Z thinks it needs $500,000 a year to succeed. What that says about our economy.

What personal-finance issues would you like to see covered in MarketWatch? We would like to hear from readers about their financial decisions and money-related questions. You can fill out this form or write to us at readerstories@marketwatch.com. A reporter may be in touch to learn more. MarketWatch will not attribute your answers to you by name without your permission.

-Venessa Wong -Jeffry Bartash

This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.

(END) Dow Jones Newswires

March 07, 2025 13:28 ET (18:28 GMT)

Copyright (c) 2025 Dow Jones & Company, Inc.