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American consumers are maintaining and increasing spending even as prices outpace wages, drawing on home equity, food assistance, fuel discounts and cost-saving tools to support their lifestyles.
-- For the past five months, prices have been rising faster than wages, a turnabout that might have pushed US consumers to cut back.
Instead, they've kept spending. Angry Bondholders Flood Wall Street With Complaints on Paramount Losses Consumption rose at the fastest pace in over a year in August, with government data this week showing increases in categories such as cars, clothing and restaurants.
To keep it going, households across the income spectrum are drawing on a wide range of resources: tapping into the equity they've built in their homes, going to food banks to free up money for other purchases or using ChatGPT to lower grocery bills. It's something Tom Barkin, president of the Federal Reserve Bank of Richmond, is seeing in company earnings reports and as he talks to businesses and people around his district, which spans from Maryland to South Carolina.
"As things get a little tighter, as prices go up and challenge wage growth, people do want to maintain their lifestyle," Barkin said in an interview. "I've just been taken by the resourcefulness of the consumer. " In Atlanta's northern suburbs, Elizabeth Gentile, 61, and her husband haven't necessarily had to cut back, but they've always lived below their means.
Now, with gas prices averaging more than $4 a gallon across the country, the couple is employing a trick at their local Kroger, a technique some have dubbed the"double fill up.
" They'll park two family cars on either side of Kroger's gas pumps and hand the dispenser off to their spouse when done, keeping it to a single transaction and eligible for up to a dollar off per gallon. "If a car pulls up while we are gassing, we always explain to them what we are doing to be courteous," Gentile said. "We laugh and say that we are sharing our dollar-off fuel points. So far everyone has understood.
" The US is in its sixth year of inflation that central bankers like Barkin — and many Americans — deem too high. The cost of groceries is up 32% since the start of 2020, with a pound of ground beef now averaging a record $7.16. Households have been hit by a succession of price shocks triggered by the post-pandemic boom, tariffs and now a war in Iran.
Wages aren't keeping up anymore: They have trailed price growth since March, according to Bureau of Labor Statistics data. The situation is frustrating consumers, with sentiment hovering near a record low set earlier this year. Yet a recent analysis of quarterly company earnings by Bloomberg Economics and Bloomberg Intelligence found that consumer health has improved somewhat in spite of it all.
Large retailers including Walmart Inc. are reporting that some customers are trading down, seeking discounts and turning to store-brand products that are less expensive than brand-name goods. But Darden Restaurants Inc.'s chief executive also said last month that people keep coming back to his casual-dining chains, which include Olive Garden. To fund that spending, the resourcefulness noted by the Richmond Fed's Barkin runs the gamut.
One way are buy-now-pay-later services, which have exploded in popularity, particularly among young people, and have grown about 20% every year since 2021, according to research from the regional Fed. Kenny Marbry, a teacher from Atlanta's Duluth suburb, seized on artificial intelligence tools. He'll feed grocery store receipts into ChatGPT to evaluate whether Kroger or Sam's Club is the better option or snap pictures of a store's entire shelf to let AI evaluate the best deals.
Marbry, 38, figures he's saving around $100 a month with help from his chatbot assistant, as well as some extra discipline he's picked up comparison-shopping.
"I'm much more likely now to look at a price and ask myself, 'Do I really need to buy this? Can I get it somewhere else cheaper? Or can I make it myself?
'," Marbry said. "Those small decisions add up, especially when you're feeding a family of five and trying to make every dollar stretch. ""Housing assistance, rental assistance, that's very difficult to get. Food is a lot easier," said Brian Greene, head of the Houston Food Bank, the country's largest by distribution.
The buzz among many automotive body shops is that cash-strapped consumers are living with the dings and dents on their cars and forgoing repairs, said Aaron Schulenburg, executive director of the Society of Collision Repair Specialists. That's at least partly because of surging insurance costs. Deductibles of $2,000 are no longer unheard of, he said.
"They're facing financial decisions where in other periods of time, when people were stretched less, it was an easier decision to go get their cars fixed," Schulenburg said. Shell-shocked by new car prices that are averaging $50,000, Americans are taking on longer-term loans to afford the monthly bill. In August, 31.3% of vehicle loans had terms longer than six years, a record in data from automotive services firm Cox Automotive and up 5.8 percentage points from a year earlier.
"It's a reminder that it's always the monthly payment that people are thinking about," said Erin Keating, an executive analyst at Cox. "It's quite astonishing. They're going, 'What can you do to get to that monthly payment to make this work?
'"More affluent consumers are drawing from assets that have boomed post-pandemic. The share of people making net withdrawals from their investment accounts has doubled since 2019, a JPMorganChase Institute report shows. And although older and richer people are leading the rise, withdrawals have increased across age and income groups, the researchers found, suggesting that"a growing portion of younger individuals are also using investment wealth to fund spending.
" Homeowners, who have seen the value of their houses surge over the past few years, are taking loans against those assets to finance large expenses. Loans against a home's equity, known as HELOCs, rose 9.4% to the highest level since 2017 in the second quarter from the same period last year, according to Fed data. Historically, a large share of HELOCs are used for home projects, according to equity analysts at Jefferies.
With 30-year mortgage rates now above 7%, those who locked in at a much lower rate are likely to continue spending heavily on their homes. Meanwhile lower-income families are resorting to personal debt. A recent poll commissioned by No Kid Hungry Texas found that 39% of parents in the country's second-most populous state are taking on debt in order to pay for groceries.
Demand for loans this year has surprised Jessica Grostic, president and chief executive of Copper Basin Federal Credit Union, which serves four counties tucked into the Blue Ridge Mountains of Tennessee and Georgia. May and June were record-breaking months for the credit union and September, typically a slower month, was already surpassing expectations by the 25th. Grostic says there's been an uptick in people using a loan program that, based on direct deposit history, automatically lends customers up to $2,000.
"People are just sometimes desperate for cash to actually pay their bills, which is a scary place," Grostic said. "Sometimes it all comes crashing down. I just don't know when.
"Cities Across the US Are Turning Attics, Backyards and Garages Into Housing
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