PYMNTS MonitorEdge May 2024

Consumers May Dig Into Savings as Long-Term Inflation Expectations Creep Up

savings, debt, inflation

Through scores of reports on the paycheck-to-paycheck economy, PYMNTS Intelligence has found that there’s a commonality across income levels and demographics: 

Most of our collective paychecks are earmarked to meet expenses, with a little — if anything — left over to put into savings.

And yet consumers have still managed to keep spending, or at least keep their intent to spend intact.  There’s a bit of a juggling act in the works, as pullbacks in some categories fund stasis or increases in other categories.

Getting Away From it All  

Most recently, our research has shown 48% of consumers have already made travel plans for the summer.

At the same time, as noted here, there has been some nibbling away at the debt load that can, in turn, nibble away at disposable income. Roughly 15% of Generation Z said repaying debt is a priority, a sentiment echoed by 22% of baby boomers, 23% of Generation X consumers, 20% of bridge millennials and millennials, and nearly 19% of zillennials.

April retail sales were flat, which seems to point that the net paydown in debt may be giving some dry powder to the coffers.

Expectations of what lies ahead, of course, do much to determine how we treat our finances. Coming into 2024, we found that 42% of consumers expected the interest rates on their loans to increase, and 20% of consumers living paycheck to paycheck said that they’d likely dip into savings to help fund everyday living.

Headed into the final months of the year, PYMNTS Intelligence found that aggregate consumer savings amounted to an average of $11,000 per consumer in September. This amount is roughly unchanged from September 2022 after netting out the effect of inflation.

Impact of the Wealth Effect

According to the latest data on consumers’ sentiment, via the Federal Reserve on Monday (June 10), consumers said last month that they expected stock market gains to be in the cards — at nearly 41% of those surveyed. The “wealth effect” tends to make individuals and households feel a bit more flush, a bit more “insulated” against inflation.

At the same time, there’s a mixed view on inflation, reported the Fed: Median inflation expectations at the one-year horizon declined to 3.2% in May from 3.3% in April, were unchanged at the three-year horizon at 2.8%, and increased at the five-year horizon to 3% from 2.8%. 

The slightly more sanguine view on short-term inflation dovetails with a few other data points: Consumers surveyed by the central bank said their expected household income growth should come in at 3.1%, up 0.1% from the most recent reading.

At the same time, median household spending expectations slipped 0.2% to 5%. Spending intentions are still outpacing income growth. Consumers’ expectations about future credit access deteriorated, with a larger share of respondents expecting credit to tighten.  

Connecting the dots, between the Fed’s findings and our own: If consumers expect credit to be harder to get down the line, they may seek to get access sooner rather than later … but as the data above shows, they’ve been paying down the credit card debt they’ve already got on hand.

The desire to keep at least some credit at the ready, while decreasing the monthly obligations of that debt — and while intending to keep spending — may mean that there’s at least some willingness to tap the cash on hand somewhat to keep things going.