The legacy of the inflation shock on US consumers

Our forecast is for solid growth in consumer spending over the next few years, but that is largely attributed to the resilience of high-income Americans, who account for most of consumption. By contrast, spending patterns of low-income Americans will take years to recover.

What you will learn:

• Since the pandemic, wage growth has been strongest for low- and mid-income households but their finances are not in as strong a position as high-income households.
• The share of low-income household spending on discretionary items fell sharply in 2020 and has barely begun to recover, a clear sign that more of their incomes are going toward purchasing necessities. By contrast, the share of spending on discretionary for high-income households continues to trend higher.
• Even against a backdrop of rising real incomes, it will take years for discretionary spending of low-income Americans to recover to pre-Covid shares. That will continue to weigh on consumer sentiment even as the overall spending data, driven by higher income households, remain strong.