Inflation Impacting U.S. Incomes Ahead of Holidays
Inflation is currently straining U.S. incomes similarly to how it did during the Great Recession of 2008, potentially diminishing consumer purchasing power right before the important holiday shopping season, as outlined in a report from JPMorgan released on Tuesday.
As of October, the median income growth for individuals aged 25 to 54 sits at a mere 1.6%, adjusted for inflation, based on an analysis of bank account data.
“Households will end the year seeing sluggish income growth and flat bank balances, even when factoring in inflation,” reported the JPMorgan Chase Research Institute.
The Institute pointed out that in some cases, the declines in checking and savings balances might indicate a shift of funds to high-yield money markets or other investments, likely in response to prevailing interest rates.
However, it’s crucial to note that this 1.6% growth rate resembles those seen in the early 2010s, a time when unemployment was stuck at around 7% and was slowly improving.
As of September, the unemployment rate climbed to 4.4%, marking its highest level since October 2021.
The analysis revealed that younger workers are not experiencing the substantial income increases typical in the early stages of their careers, where job changes and promotions often play a role.
In contrast, nearly half of workers aged 50 to 54 are experiencing a decline in income after adjusting for inflation.
Wage growth tends to be slower for older employees, which leaves them “more vulnerable to negative impacts from rising inflation and a weakening labor market,” the analysis stated.
“With the excess cash from the pandemic era behind us, consumers are approaching a year-end spending season, constrained by slow income growth yet somewhat supported by notable gains in the stock market, the benefits of which are unevenly distributed,” the J.P. Morgan Institute noted.
“While nominal growth aligns broadly with pre-pandemic levels, real purchasing power growth remains subdued due to rapid consumer price increases.”
Inflation in the U.S. rose by 3% annually in September, reflecting the fastest growth rate since January, according to last month’s Consumer Price Index release.
On the other hand, wholesale inflation only increased by 0.3% in September, leading to an annual figure of 2.7%, the Bureau of Labor Statistics stated on Tuesday.
The Commerce Department reported a 0.2% rise in retail sales for September, though spending effectively dropped by 0.1% that month as prices increased by 0.3%.
Additionally, a Conference Board survey released on Tuesday indicated a drop in consumer confidence to 88.7 in November, down from 95.5 in October, marking the lowest level since April.
A mere 1% of consumers believe business conditions are “good,” significantly down from 21% last month, and only 6% see job conditions as “abundant,” a fall from 29% in October.
