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High prices are forcing Americans to spend more and save less. But they are not going into more debt, at least not yet.
A quarter of Americans say they are spending more than usual, according to the latest Forbes Advisor-Ipsos Consumer Confidence Weekly Tracker. Last month, 20% of respondents said they were spending more, and in January only 15% did.
The investigation, conducted by Ipsosmeasures consumer sentiment over time.
With soaring prices for goods, energy and gas, it’s no wonder Americans feel stuck. Consumer prices in March were 8.5% higher than the same period in 2021, according to data from the Bureau of Labor Statistics (BLS), the largest 12-month increase in 40 years.
Consumers spend more while waiting for inflation relief
On May 4, the Federal Reserve raised its key rate by half a percentage point in an effort to control inflation. It’s the Fed’s biggest single rate hike in more than two decades.
But lingering supply chain imbalances and the pace of Fed rate hikes could delay tangible results for consumers. The central bank expects inflation drop to 4.3% at the end of the year, but it is still higher than its target of 2%.
“It’s hard to say which prices will fall first,” says Dawit Kedebe, chief economist at the Credit Union National Association (CUNA). “Interest rate increases tend to slow price increases…[and] there are several factors that impact the prices of goods and services, other than tariffs, such as supply and demand.
Americans’ confidence in buying big ticket and household items remains low. Sixty-one percent of respondents said they were less comfortable making a major purchase, such as a house or car, than six months ago. And 58% said they were less comfortable making household purchases compared to six months ago.
But comfort levels can be even lower for certain groups of people.
The Ipsos survey found a notable drop in consumer confidence for rural Americans (their overall confidence fell 7 points this week), non-white respondents and those aged 55 to 74.
Recent inflation has had a greater impact on rural communitieswho travel further to access goods and services and who may have fewer local options for shopping.
And seniors living on fixed incomes may have less wiggle room in their budgets to account for widespread price increases.
Read more: Financial resources to help seniors in times of inflation
Will pandemic-related economies dry up if inflation continues?
Thirty-seven percent of Ipsos respondents said they were saving less than usual. This group has increased by four percentage points over the past month and seven points since January.
So far, it seems some people have been able to weather high inflation by diverting money they would otherwise have saved to cover higher costs.
the personal savings rate— the share of their disposable income that Americans save — was 6.2% in March. This rate fluctuated between 7% and 8% throughout 2019 before fluctuating wildly as waves of government aid were distributed.
The personal savings rate tells us how much money people are putting aside, but it doesn’t tell us how much people are withdrawing from their existing savings.
The latest data from Ipsos shows that 23% of respondents are dipping into their savings more than usual, but this has remained consistent over the past six months. In addition, 37% are saving less than usual.
Currently, the number of respondents paying off debts like loans or credit cards is also consistent, with 24% saying this week that they are paying less than usual to get into debt. This marker has hovered between the low and mid-twenties over the past six months.
The Fed’s interest rate hike to curb inflation could lead to more debt dependence for many Americans, especially if supply chain issues prevent prices from stabilizing. rapidly.
As interest rates rise, the cost of borrowing rises for consumers, says Chris Campbell, chief strategist at business risk consultancy Kroll. If households have to turn to credit cards or other borrowing to fill budget gaps, they will end up paying more interest on their balances.
“It will become more difficult to pay off credit cards, which will most likely mean that the average consumer will be forced to pay off their debts and find it difficult to buy basic necessities for their families,” Campbell said.
Read more: Why is inflation rising right now?
Will the labor market stay hot as rates rise?
The Ipsos jobs index sits at 64 (out of 100) this week, and while it remains the highest of the confidence categories in the bi-weekly tracker, job confidence has fallen 2.4 points compared to two weeks ago.
Forty percent of respondents said they or a family member or friend are likely to lose their job in the next six months due to the economy, up one point from at the last survey.
Unemployment has returned to pre-pandemic levels and there are currently two job openings for every unemployed person in the country, according to BLS data. But controlling inflation is likely to cool the simmering labor market.
Rising interest rates are likely to reduce hiring, says Giacomo Santangelo, economist at recruiting platform Monster. “As companies face higher borrowing costs, they are expected to hire less. As consumers face higher rates, they are expected to be in desperate need of cash, which means they will be less picky about the jobs they take on,” he says.
But he says not everyone will feel the impact of higher rates in the same way. As the economy adjusts, Santangelo says, someone looking for a job as a driver with a national trucking company may have a more difficult job-search experience than a hairstylist looking to work in a local salon, or vice versa.
Survey methodology: Ipsos, which surveyed 930 respondents online on May 2-3, 2022, provided the results exclusively to Forbes Advisor. The survey is conducted weekly to track consumer sentiment over time, using a series of 11 questions to determine whether consumers have a positive or negative view of the current state of the economy and the future. .