Marcus Satterfield of Virginia Beach, a successful high-tech entrepreneur. Even with this recent reprieve, he still has tough financial waters to navigate. This year, his Christmas budget has been cut in half. On top of that, his credit cards are maxed out after months of fighting against the acute cost-of-living crisis. In short, the U.S. economy is booming. In fact, it’s on fire – as in expanding by a sizzling 4.3% during just the third quarter of this year, mostly thanks to huge consumer spending.
The proposition is a worthy one, and its fate is inextricably linked to a massive economic challenge. Household debt was already at a record $18.59 trillion earlier this year. In the face of financial strain, those cuts are clear. The percentage of seriously delinquent credit card balances has risen to 12.41%, hitting its highest level in more than 14 years. Consumer bankruptcies are at their highest level in five years. This spike is an indicator that millions of American households are having severe difficulties meeting their financial commitments.
Rising Household Debt and Delinquencies
This is a very dark time for most American families. New delinquencies for every single loan product have increased to an 11-year high. This troubling trend reflects how difficult it has become for consumers to simply make ends meet in a highly unstable economy. Helen Nerviano is one of many. As a retiree, she finds it hard to make her limited income last in the face of growing costs.
Nerviano’s health insurance costs were low enough—$170 a month—that she could afford to retire at age 62. Her electricity bill has gotten outrageous—she used to pay $130–$150, but now it’s an alarming $252. This sudden increase in her utility expenses has only compounded her financial stresses.
“I’m used to my electricity bill being $130 to $150, and I just got one this month that was $252.” – Marcus Satterfield
The intolerable surge in basic costs has most average Americans struggling just to stay afloat. To Satterfield, that extra $100 in his electricity bill could be going towards food or saving up for an unforeseen emergency. He spoke to the stress that rising expenses are putting on his family’s budget.
“Essentially, $100 more than previous years. And that extra $100 could have gone to providing more groceries or household items for me and my daughter, or just a nest egg to save for emergencies and things like that.” – Marcus Satterfield
Economic Growth vs. Consumer Strain
The economy is booming and on an upward trajectory – 850,000 new residents since 2010! That’s not to say that all households are equally sharing in the benefits of this growth. As economic analyst Justin Begley notes, it is wealthier households who are driving consumer spending. They have identified new ways to absorb inflationary impacts over the past two years. The bottom line is that lower-income and middle-income families are having a bad time. Their wages have only just begun to recover with inflation.
“The more well-to-do households are powering spending; they’ve been able to deal with the higher inflation over the last couple of years,” – Justin Begley
These disparities are exacerbating a lonely and isolating reality – too many women, especially women of color, are experiencing poverty. As one set of families are doing great, the other set are just dying still from rising living expenses. In fact, the jobless rate is consistently stagnant around 4-5%, a level economists refer to as “full employment.” This statistic hides the fact that Americans are feeling strained economically.
“Whereas, the lower end of the income spectrum and middle-income households are still spending, but they’re finding it harder to do so – given the fact that only just now are their wages starting to catch up with inflation.” – Justin Begley
Future Outlook for Consumers
With inflation still stubbornly above 3% this year, despite interest rates relaxing. Consumers such as Nerviano or Satterfield have no choice but to contend with the overwhelming task of affording their basic prescription needs in this unpredictable new environment. In many ways, Nerviano’s story is a cautionary tale about how soaring, unpredictable expenses can derail even the most carefully laid retirement plans.
“Had no clue what was on the horizon – the prices of food, insurance, clothing, and I adopted my granddaughter. It was just like a storm of events that I wasn’t planning on when I retired.” – Helen Nerviano
Despite these challenges, economists argue that some measures can go a long way toward reducing some of the regressivity imposed on lower- and middle-income households. Begley also highlights the promise in tax deductions and credits designed to alleviate economic pressures.
“So that ‘no tax on tips,’ ‘no tax on overtime,’ and, of course, the higher deduction for Social Security taxes plus expansions for the child tax credit, those should help lower-middle-income households weather any storm that comes their way,” – Justin Begley
While these measures can provide some measure of relief, they cannot substitute for the stark reality of lost jobs when unemployment spiking becomes an inescapable reality. The worry about prevailing economic times still casts its shadow over so many households around the country.
“It’s perpetual. There’s no end in sight.” – Helen Nerviano