PYMNTS MonitorEdge May 2024

Consumer Spending Revised Lower as Paycheck-to-Paycheck Households Struggle

inflation, economy, consumer spending, Federal Reserve study

The third estimate of how gross domestic product (GDP) fared in the first quarter showed — at least in the headline number — there was a slight boost from previous estimates.

The Bureau of Economic Analysis’ final reading noted that first quarter GDP was 1.4% higher, on an annualized basis, where that estimate had previously been 1.3%.

“The upward revision primarily reflected a downward revision to imports, which are a subtraction in the calculation of GDP, and upward revisions to nonresidential fixed investment and government spending,” the bureau observed.

The latest report also stated that those positive contributions were partially offset by a “downward revision to consumer spending.” At the same time, the personal consumption expenditures (PCE) price index was 3.4% higher in the quarter, reflecting the continued impact of inflation. Inflation affects disposable income, as measured in real terms, and the data showed that “real” disposable personal income increased by 1.3% in the first quarter, a downward revision of 0.6%.

Eyeing Low-Income Consumers

The first quarter’s data is decidedly backward-looking but may give a sense of what’s to come when all is said and done with the second quarter, which will end Sunday (June 30). The weight of the economy is on the consumer’s shoulders, and the struggle among low-income consumers is present and reflected in the drag on spending.

As PYMNTS’ Karen Webster noted in a June 21 column, with a nod to PYMNTS Intelligence research, corroborated by government stats on retail sales and sentiment, “the other consumer spending shoe is starting to drop.” Two-thirds of consumers are trading down, and slightly more than half of consumers are shifting to cheaper merchants. PYMNTS has consistently chronicled that roughly 60% of U.S. households live paycheck to paycheck.

But in an economy where 10% of consumers earning $50,000 or less have issues paying their bills, there’s little left to go around. As the BEA data indicated, real disposable income has been under pressure. When 27 million consumers (as PYMNTS has estimated) tied to 8% of retail spend feel the pinch of allocating nearly three-quarters of their paycheck to the essentials of daily life, so do merchants and enterprises dependent on that spending. Savings are little buffer, as these consumers tend to have about $2,000 in their savings accounts.

Eyeing Walmart

Walmart is a tell here, with some connecting the dots on demographics. PYMNTS Intelligence found that roughly one-third of consumers shopping at the retail giant earn below $50,000 annually. Forty-one percent of all the shoppers surveyed who are Walmart stalwarts said they live paycheck to paycheck and have issues paying their bills.

The writing’s on the wall, as they say — and perhaps as Walmart goes, so goes the economy. Walmart Chief Financial Officer John Rainey told an investment conference this week that comp sales growth will be challenged to meet the first quarter’s 3.9% growth rate.