As 60% of Americans live paycheck-to-paycheck, spending reductions are inevitable. A strong economy and wages gains as well as Covid stimulus savings are helping to reduce spending. However, price spikes in key categories such as food, fuel, and shelter have made it more difficult for Americans to watch their finances closely.

CNBC and Momentive have conducted a survey to find that inflation is on the rise. risk of recessionAmericans also say that they are confident. started buying lessInflation will continue to force consumers to buy less from more types of products. These financial stresses aren’t just for those with lower incomes. According to the survey, Americans with at least $100,000 in income said they have cut back or will soon reduce their spending. This is similar to what lower income people are saying.

It is crucial to the health of the economy that high-income consumers play a key role. It is only one third of all consumers but it accounts for nearly three quarters of spending. Mark Zandi (chief economist at Moody’s), notes that “if high-income consumers go out shopping, there won’t be a lot of impact on the raw consumer activity.”

The survey shows that lower-income households are most vulnerable. They are more likely to have to make unwelcome compromises in order to stretch their income as much as they did a year ago. According to the survey results, 57% of Americans earning less than $50,000 feel more stressed than they did a year ago. This compares with 45% for those making $100,000 and more. Although the 68% high-income consumer who stated they were concerned about higher prices forcing them to reconsider their financial choices is lower than the 82% Americans earning $50,000 or more who answered the survey, it still represents a significant proportion.

Over half of households with incomes less than $50,000 claim they have cut back on many expenses. For those earning at least $100,000, there are similar cutbacks in dining out and when buying a car.

“People making six-figure incomes are almost as worried about inflation as people making half as much—and they are just as likely to be taking steps to mitigate its effect on their lives,” said Laura Wronski, senior manager of research science at Momentive. She said that inflation is an ongoing problem and people with high incomes will not be immune to the effects of price rises in the second and third orders.

Another recent survey shows a worsening picture.

According to the University of Michigan Survey of Consumers, more respondents cite lower living standards as a result of rising inflation. This is in contrast to the previous 50 year survey. They also mention the worst recessions of the last 50 years (March 1979-April 1981 and May 2008 to October 2008). Notably, the consumer confidence gap between low and high income levels always shrinks at cyclical troughs and is always widest at peak, and the gap is narrowing now, according to survey director Richard Curtin. 

In January the gap in sentiment between those with the lowest and highest income was 13.2 percentage points. It was erased in March as the sentiment of the top income group fell below that of the lowest income bracket. The expectations of the highest income groups were 18 percentage point higher in January.

Curtin stated that there are a few issues right now that may be aggravating this gap closing. These include the possibility for Russia’s invasion in Ukraine, which could do more harm to the global economic system than predicted, and the fact the vast majority of people have not seen inflation of 10%+ or mortgage rates of 15% as they did in the past.

Curtin stated that even at low rates, they might display behavior associated with past economic hardships. He said that upper-income groups are more likely to consume in a prudent manner because of this.

Zandi stated that the CNBC survey data showed “the American consumer is feeling down.” Two years have passed since the pandemic, when millions lost their jobs, high unemployment and then high inflation hit. “Fragmented politics” is now weighing on our collective psyches.

The survey found that all income groups are likely to predict the recession, with more than 80%. However, there’s a caveat. Actual spending from the economy doesn’t necessarily indicate that this prediction will be true.

Zandi stated that consumers continue to spend strongly despite the negative feelings they have about their finances and cuts. Many jobs are available, the unemployment rate has dropped, their debt levels are low and asset prices have risen. Additionally, there’s a lot of saving. Even though some people may be cutting back or spending less on items, their moods have not yet influenced the level of spending that results in a decrease in economic growth. Zandi indicated that “I believe the American consumer will continue to spend, regardless of their mood,” Zandi added.

Conference Board latest monthly confidence index reading showed present confidence up (slightly) for the first time this year, but the expectations index lower, with consumers citing rising prices, including gas.

Lynn Franco, The Conference Board’s director of economic indicators, surveys and research, stated that there was still a gap between consumers with lower and higher incomes. This is due to the inflationary environment and the less effect the wealthy will experience from factors such as gas prices. She said the gap does always narrow in a pre-recession period — but its data is not indicating a recession as of now.

The confidence survey projects a decline in economic growth for the next quarters, mainly due to rising prices. Americans are spending less on discretionary products as more money is spent covering basic needs. That will be most acutely felt by the lower-income consumers, but there is broad-based concern about prices rising significantly in the months ahead — 6 out of every 10 consumers surveyed by The Conference Board think the Russia-Ukraine war will cause prices to rise significantly.

Franco stated that the survey was broad and could make it more difficult for people to delay big-ticket purchases such as housing, autos, and washing machines. While we expect to see some slowing of consumer spending in the coming quarters, it is not expected that this will lead us into recession.

Franco said that Americans who earn $125,000 have a lower overall level of confidence than mid-2021. However, they are still confident “relatively despite the volatility we’ve seen.” … “The indications that we’re getting across income categories speaks more toward a softening consumer spending than an extreme pullback,” she stated.

Similar to all other Conference Board outlooks, the Conference Board data is based on a crucial role for the labor force in supporting confidence, balancing inflation and supporting confidence. Americans are saying that jobs are plentiful at an all time high. 

CNBC CFO Council members mentioned “a tale about two cities” with consumers. Higher income customers are still strong, while consumers of lower income begin to digest the stimulus. The new equilibrium point will not be reached and inflation will not grow at the same rate as over the last year. However, it will stay higher and consumer spending must be measured against that dynamic. This dynamic will continue through 2022 and will likely be felt more strongly in the second half.

The decline of the consumer savings rate, the success of the Fed in slowing the economy without putting it in recession and raising interest rates; as well as greater supply chain stability are key factors CFOs should be monitoring.

With new Covid varieties and the Russian war in Ukraine affecting energy prices, the supply chain is still in flux. If supply chain tensions improve, however, inventory replenishment will occur at a pace that may cause retailers to be more cautious about pricing. Consumers might also start to reduce their consumption and trade away or downsize certain types of purchase.

Conference Board’s latest CEO survey revealed that businesses are passing on the inflation costs relatively quickly to consumers. That pattern will likely continue for the next few months with wage increases a contributor. Franco stated that members are confirming the fact that tight labor markets will persist for several more months. Franco also said wage pressure would continue.

Market participants will continue to look out for indicators of sustained consumer strength in higher prices, as earnings are reported. Conagra revealed earlier in the week that its results couldn’t show price increases to its bottom line relative input costs. But CEO Sean Connolly claimed on Thursday that consumers demand “has remained strong in spite of all our pricing actions.”

Conagra will increase prices.