Soaring Food and Housing Costs Strain Lower-Income Households

The latest data from the Bureau of Labor Statistics on Consumer Expenditures underscores what PYMNTS Intelligence has found for months: Food and shelter, among the most essential of all spending categories, are taking an outsized chunk of households’ paychecks — especially for lower-income consumers.

The announcement from Wednesday (Sept. 25) showed that overall annual expenditures in 2023 were 5.9% higher than the previous year. Prices were up 4.1%, and the average income before taxes was up 8.1%.

Where Prices – and Spending – Rose

Housing was up by 4.7% and represented 32.9% of total expenditures. Spending on food was nearly 13% of expenditures, a 6.9% increase from 2023. Food consumed at home (a proxy for groceries) was 6.1% higher, outpaced by food consumed away from home at 8.1%. The data shows that single-parent consumer units allocated the highest shares to housing (at 37.3%). Housing costs for the first and second quintiles of income saw spending on housing grow by about 4% year on year.

As the data notes above, if price increases eat into average income (before taxes, and most of us pay taxes before we see our take-home pay), and spending is still lofty, then the logic follows that a significant portion of the paycheck is shaved down — and that’s especially true of the lower-income households, where PYMNTS Intelligence data has shown that the essentials can eat up as much as three-quarters of the family paycheck.

Our findings on housing expenditures for folks making less than $50,000 stand at about 37% of take-home pay, while food-related spending takes another 25%.

Perhaps it’s no coincidence that, as PYMNTS reported Tuesday (Sept. 24), the consumer confidence index dropped to a reading of 98.7 this month, down from 105.6 last month. The Conference Board noted that this was the largest decline seen since August 2021. All five of the consumer confidence index components, spanning the outlook for the economy, inflation and concerns about the job market, deteriorated, the board said. The outlook was especially glum for consumers ages of 35 to 54 and earning less than $50,000.

As PYMNTS has found, among those earning less than $50,000 annually, approximately 40% say they earn insufficient income. The read across is that these consumers are financially stressed, and the savings account balances for consumers in that designation are 75% less than the average American household.

At least some of the key areas of spending on the essentials remained lofty: In terms of individual line items, the August data from the Consumer Price Index showed that shelter was up 5.2% on an annualized basis, increasing from July. As measured on a month-over-month basis, the shelter index surged 0.5%, accelerating from the 0.4% pace seen in the June-to-July timeframe.