{"id":128705,"date":"2022-08-08T13:27:33","date_gmt":"2022-08-08T13:27:33","guid":{"rendered":"https:\/\/fin2me.com\/?p=128705"},"modified":"2022-08-08T13:27:33","modified_gmt":"2022-08-08T13:27:33","slug":"in-an-unequal-economy-the-poor-face-inflation-now-and-job-loss-later","status":"publish","type":"post","link":"https:\/\/fin2me.com\/economy\/in-an-unequal-economy-the-poor-face-inflation-now-and-job-loss-later\/","title":{"rendered":"In an unequal economy, the poor face inflation now and job loss later"},"content":{"rendered":"

By Jeanna Smialek and Ben Casselman<\/strong>, The New York Times Company<\/em><\/p>\n

For Theresa Clarke, a retiree in New Canaan, Connecticut, the rising cost of living means not buying Goldfish crackers for her disabled daughter because a carton costs $11.99 at her local Stop & Shop. It means showering at the YMCA to save on her hot water bill. And it means watching her bank account dwindle to $50 because, as someone on a fixed income who never made much money to start with, there aren\u2019t many other places she can trim her spending as prices rise.<\/p>\n

\u201cThere is nothing to cut back on,\u201d she said.<\/p>\n

Jordan Trevino, 28, who recently took a better-paying job in advertising in Los Angeles with a $100,000 salary, is economizing in little ways — ordering a cheaper entree when out to dinner, for example. But he is still planning a wedding next year and a honeymoon in Italy.<\/p>\n

And David Schoenfeld, who made about $250,000 in retirement income and consulting fees in 2021 and has about $5 million in savings, hasn\u2019t pared back his spending. He just returned from a vacation in Greece, with his daughter and two grandchildren.<\/p>\n

\u201cPeople in our group are not seeing this as a period of sacrifice,\u201d said Schoenfeld, who lives in Sharon, Massachusetts, and is a member of a group called Responsible Wealth, a network of rich people focused on inequality that pushes for higher taxes, among other stances. \u201cWe notice it\u2019s expensive, but it\u2019s kind of like: I don\u2019t really care.\u201d<\/p>\n

Higher-income households built up savings and wealth during the early stages of the pandemic as they stayed at home and their stocks, houses and other assets rose in value. Between those stockpiles and solid wage growth, many have been able to keep spending even as costs climb. But data and anecdotes suggest that lower-income households, despite the resilient job market, are struggling more profoundly with inflation.<\/p>\n

That divergence poses a challenge for the Federal Reserve, which is hoping that higher interest rates will slow consumer spending and ease pressure on prices across the economy. Already, there are signs that poorer families are cutting back. If richer families don\u2019t pull back as much — if they keep going on vacations, dining out and buying new cars and second homes \u2014 many prices could keep rising. The Fed might need to raise interest rates even more to bring inflation under control, and that could cause a sharper slowdown.<\/p>\n

In that case, poorer families will almost certainly bear the brunt again, because low-wage workers are often the first to lose hours and jobs. The bifurcated economy, and the policy decisions that stem from it, could become a double whammy for them, inflicting higher costs today and unemployment tomorrow.<\/p>\n

\u201cThat\u2019s the perfect storm, if unemployment increases,\u201d said Mark Brown, CEO of West Houston Assistance Ministries, which provides food, rental assistance and other forms of aid to people in need. \u201cSo many folks are so very close to the edge.\u201d<\/p>\n

America\u2019s poor have spent part of the savings they amassed during coronavirus lockdowns, and their wages are increasingly struggling to keep up with — or falling behind \u2014 price increases. Because such a big chunk of their budgets is devoted to food and housing, lower-income families have less room to cut back before they have to stop buying necessities. Some are taking on credit card debt, cutting back on shopping and restaurant meals, putting off replacing their cars or even buying fewer groceries.<\/p>\n

But while lower-income families spend more of each dollar they earn, the rich and middle classes have so much more money that they account for a much bigger share of spending in the overall economy: The top two-fifths of the income distribution account for about 60% of spending in the economy, the bottom two-fifths about 22%. That means the rich can continue to fuel the economy even as the poor pull back, a potential difficulty for policymakers.<\/p>\n

The Federal Reserve has been lifting interest rates rapidly since March to try to slow consumer spending and raise the cost of borrowing for companies, which will in turn lead to fewer business expansions, less hiring and slower wage growth. The goal is to slow the economy enough to lower inflation but not so much that it causes a painful recession.<\/p>\n

But job growth accelerated unexpectedly in July, with wages climbing rapidly. Consumer spending, adjusted for inflation, has cooled, but Americans continue to open their wallets for vacations, restaurant meals and other services. If solid demand and tight labor market conditions continue, they could help to keep inflation rapid and make it more difficult for the Fed to cool the economy without continuing its string of quick rate increases. That could make widespread layoffs more likely.<\/p>\n

\u201cThe one, singular worry is the jobs market — if demand is constrained to the point that companies have to start laying off workers, that\u2019s what hits Main Street,\u201d said Nela Richardson, chief economist at the job market data provider ADP. \u201cThat\u2019s what hits low-income workers.\u201d<\/p>\n

Lower-income people are already hurting. Brown\u2019s organization has seen more requests for help in recent months, he said, as local families fall behind on their bills. The size of the typical request has gone up, too, from a few hundred dollars to a few thousand. And he has noticed financial pain creeping up the income spectrum.<\/p>\n

Brown\u2019s observations are backed up by government data: About 12% of households reported they were struggling to get enough to eat in early July, up from about 10% at the beginning of the year, according to the Census Bureau.<\/p>\n

Families can\u2019t easily cut back what they spend on rent, gas or electricity as those prices climb, said Brian Greene, CEO of the Houston Food Bank, which provides food to Brown\u2019s organization and other charities across the region. So they cut back on food.<\/p>\n

\u201cFood insecurity isn\u2019t about food,\u201d Greene said. \u201cFood insecurity is about income.\u201d<\/p>\n

<\/p>\n

Many poorer families\u2019 incomes held up relatively well early in the pandemic because government aid — expanded unemployment benefits, stimulus checks and other programs \u2014 helped offset lost wages when businesses shut down. Then, as the economy reopened, pay soared for restaurant workers, delivery drivers and other low-wage workers.<\/p>\n

But pandemic aid programs have ended and wage growth is slowing in many sectors — average hourly earnings in leisure and hospitality, which rose rapidly last year, actually fell in July from a month earlier for rank-and-file workers. Prices have risen so fast that even unusually quick wage growth has failed to keep up.<\/p>\n

The gaping divide between the rich and poor in this inflationary moment is clear in corporate earnings calls. At Boot Barn, a Western wear retailer, sales of men\u2019s Western boots were down in the first quarter, but sales of higher-priced exotic skin boots picked up. At LVMH, which owns luxury brands like Louis Vuitton and Tiffany, U.S. revenues have been growing strongly, while at Walmart, customers are pulling back as they struggle to afford basic necessities, particularly food, which has run up sharply in price.<\/p>\n

\u201cThis is affecting customers\u2019 ability to spend on general merchandise categories and requiring more markdowns to move through the inventory, particularly apparel,\u201d Walmart said in its July 25 guidance.<\/p>\n

It\u2019s not just apparel: Consumers across the economy are buying less milk and fewer eggs, as prices for those products rise significantly, according to an analysis of government figures by Michelle Meyer, chief U.S. economist for Mastercard. Yet they are also going out to eat at restaurants more often.<\/p>\n

The fissures are clear in the car market. Demand for new cars, which generally sell to higher-income buyers, has remained strong and prices continue to soar amid supply shortages — putting upward pressure on inflation. But used-car demand is ebbing and prices have begun to depreciate again.<\/p>\n

\u201cWe see bifurcation in many parts of the economy and the auto market,\u201d Jonathan Smoke, chief economist at Cox Automotive, said in an interview. \u201cThe new vehicle buyer has shown much less price sensitivity.\u201d<\/p>\n

Housing is another realm where fates have diverged. Home costs have run up sharply since the pandemic and mortgages are now more expensive, making buying unaffordable for many families. Because would-be buyers can\u2019t afford homes, they are renting, keeping apartments for lease in short supply and pushing rents ever higher. Those soaring rents hit lower-income households especially hard: Roughly 6 in 10 people in the bottom quarter of earners rent their homes.<\/p>\n

By contrast, homeowners have both seen their houses rise in value and often enjoy a built-in inflation hedge, since many refinanced their mortgages and locked in low monthly payments when rates were low in 2020 and 2021.<\/p>\n

\u201cThe haves are really comfortable right now,\u201d said Nicole Bachaud, an economist from Zillow, also noting that \u201cwe\u2019re going to see this gap getting wider between people who are homeowners and people who are probably never going to be homeowners.\u201d<\/p>\n

Clarke, the New Canaan retiree, recently got off the waitlist for an affordable apartment for herself and her 24-year-old daughter, who has autism and cannot work. Their new unit has just one bedroom, but it is clean and has new appliances, and at about $1,350 a month, she can squeeze it into her budget.<\/p>\n

The lease lasts only a year, however, and Clarke is worried about finding somewhere to live if it isn\u2019t renewed. Even now, she is barely making ends meet: She lost her car keys recently and had to spend nearly $500 replacing them, wiping out nearly all her small rainy-day fund and leaving her one crisis away from financial disaster.<\/p>\n

\u201cWhen you don\u2019t have money, you\u2019re on a fixed income, you\u2019re constantly thinking, \u2018Well, maybe I shouldn\u2019t have bought that,\u2019\u201d she said. \u201cThere\u2019s no cushion. There really never was.\u201d<\/p>\n

More financially secure families also face headwinds, of course, which could eventually prompt them to slow down spending. The cash savings they built up during the pandemic won\u2019t last forever, and rising prices could prompt many households to pull back their spending.<\/p>\n

And swooning stock markets could prompt richer families, who tend to have more money invested, to spend less than they otherwise would. Some economists think that the people in this demographic have mostly kept spending recently — despite their falling economic confidence \u2014 because they are eager to take vacations that they had put off earlier in the pandemic.<\/p>\n

\u201cWhere I\u2019m budgeting, it\u2019s to make room for travel,\u201d said Trevino of Los Angeles. \u201cI feel like I\u2019ve missed out on that a little bit.\u201d<\/p>\n

Economists have speculated that richer consumers\u2019 resilience could fade as autumn approaches and they take stock of their finances amid a slowing economy. But for now, the reality that America\u2019s wealthier consumers have yet to sharply pull back in the face of rising prices may be setting up a tough road ahead for the nation\u2019s poorer ones.<\/p>\n

\u201cWe really, in a way, haven\u2019t noticed the inflation very much,\u201d Schoenfeld said. \u201cThis economy is very unfair.\u201d<\/p>\n

This article originally appeared in The New York Times.<\/em><\/p>\n

Source: Read Full Article<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

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