JPMorgan analyst Matthew Boss said the U.S. economy is in a "selective recession" as low-income consumers are unable to afford the cost of living.
In an interview on Tuesday, Boss said there is a divide between high-income and middle- and lower-income American consumers, with the latter struggling to cope with rising living costs amid persistently high prices and dwindling savings.
“The high-end consumer is becoming more selective,” Boss said. “I think the low-end market is like a melting ice cube… I’m now calling it a ‘selective recession.’ According to our survey, more than 70% of low-income consumers now say they are struggling to make ends meet.”
Other market commentators have also pointed to a looming slowdown in consumer spending as middle-class Americans feel the pinch of inflation. In a first-quarter survey by Primerica, 67% of middle-class households said their incomes were not keeping up with the cost of living.
Citigroup CEO Jane Fraser previously said she saw a "K-shaped consumer" pattern, with wealthy consumers increasing their spending while lower-income households struggled with higher living costs.
"We are seeing lower income consumers being more cautious and feeling more of the cost of living pressures, which have been high and are increasing," Fraser said. "So while they have employment opportunities, their debt service levels are higher than before."
While inflation has cooled sharply from its 2022 peak, consumers are still bearing the brunt of years of cumulative price increases. Consumer goods are generally 22% more expensive than they were five years ago, according to the Bureau of Labor Statistics.
"We are looking at low- and middle-income consumers who are facing pressure, and the real source of pressure is that inflation is still going on," Boss said. "It doesn't matter if prices are rising a little bit every month, or if inflation is getting worse, it's a little bit of a drain on their accumulated savings."
Most Americans may have already used up the savings they accumulated during the pandemic. According to a paper by economists at the San Francisco Federal Reserve, the extra savings from the COVID-19 pandemic may have been exhausted by March of this year. In Primerica's survey, 38% of middle-class respondents added that they did not have a $1,000 emergency fund.
As Americans look at a deteriorating job market and expect interest rates to remain elevated for an extended period, fears of a recession are growing. In its latest recession forecast, the New York Federal Reserve estimated a 50% chance of a U.S. recession within the next 12 months.
The article is forwarded from: Jinshi Data
