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Despite Signs of Easing Inflation, Many Americans Still Struggle Financially
Signs of Relief in Inflation Rates
By many measures, consumers who have been squeezed by higher prices should be experiencing some relief. Recent releases show that, at least compared with the soaring inflation from a year ago, prices have begun to ease. The consumer price index, which measures inflation, increased 3% from a year ago, which is the lowest level since March 2021, while the personal consumption expenditures price index also notched the lowest annual level in more than two years.
Many Still Living Paycheck to Paycheck
And yet, as of June, 61% of adults still say they are living paycheck to paycheck, according to a new LendingClub report, unchanged from a year ago. Lower-income workers have been the hardest hit by price spikes, particularly for food and other staples. Roughly three-quarters of consumers annually earning less than $50,000 and 65% of those earning between $50,000 and $100,000 were living paycheck to paycheck in June, based on LendingClub's numbers. Fewer top earners have been struggling to make ends meet, with only 45% of those earning $100,000 or more reporting living paycheck to paycheck.
Financial Stress and Lack of Savings
A majority, or 52%, of adults, including high earners, said they have felt more financial stress since before the Covid pandemic began in 2020, according to a CNBC Your Money Financial Confidence Survey conducted in March. This is largely due to inflation, rising interest rates, and a lack of savings. The survey found that 58% of Americans are living paycheck to paycheck.
Continuing Financial Challenges
Struggling to Afford Day-to-Day Lifestyle
Still, more than half of all U.S. consumers struggle to afford their day-to-day lifestyle, which is forcing some to rely more on credit cards or dip into savings, making them financially vulnerable. "Budgets are still very stretched and, for a lot of households, credit cards are filling the gap," said Greg McBride, Bankrate's chief financial analyst. "People aren't financing purchases at 20% because they have other options. They're doing that because it's their only option."
Federal Reserve's Efforts to Tame Inflation
For its part, the Federal Reserve raised interest rates again last week in its continued effort to tame inflation. Following the hike, Fed Chairman Jerome Powell stressed that future decisions on rate moves would be based on incoming data rather than a preset course on policy. Central bank officials generally believe that inflation is still too high despite the recent positive trends and want to see multiple months of solid data before changing direction.
In conclusion, while there are some signs of easing in inflation rates, many Americans continue to struggle financially. Living paycheck to paycheck is still a reality for a significant portion of the population, with lower-income workers being hit the hardest. Financial stress, rising interest rates, and a lack of savings contribute to the ongoing challenges faced by individuals and families. The reliance on credit cards and dipping into savings indicates the precarious financial positions many find themselves in. The Federal Reserve's efforts to tame inflation through interest rate hikes reflect the seriousness of the situation.
Conclusion: Impact on New Business
Despite the signs of easing inflation, the financial struggles of many Americans have important implications for new businesses. The high percentage of individuals living paycheck to paycheck and experiencing financial stress indicates a challenging market for businesses that rely on consumer spending. Here are some key points to consider:
1. Decreased Disposable Income
With a significant portion of the population struggling financially, disposable income is likely to be limited. This means that consumers will have less money available to spend on non-essential items or luxury goods. New businesses targeting these markets may face difficulty in attracting customers and generating sales.
2. Increased Reliance on Credit
As consumers face financial strain, they may resort to using credit cards or taking on debt to cover their daily expenses. This increased reliance on credit limits their purchasing power and may discourage discretionary spending. Businesses relying on consumer credit may find it challenging to attract customers or may face issues with late or non-payment.
3. Need for Value and Affordability
Given the financial constraints, consumers are likely to prioritize value and affordability when making purchasing decisions. Businesses that can offer affordable products or services that provide clear value for money are more likely to succeed in this market. Offering discounts, deals, or payment plans can be effective strategies for attracting customers.
4. Adaptability and Targeting the Right Market Segments
To thrive in a market where many Americans are struggling financially, new businesses need to be adaptable, innovative, and responsive to changing consumer needs. This includes identifying and targeting market segments that may be less impacted by financial challenges or finding niches where there is demand despite the economic situation.
Overall, the financial struggles faced by many Americans create a challenging environment for new businesses. However, by understanding the market dynamics, focusing on value and affordability, and being adaptable, new businesses can position themselves to succeed even in difficult times.
Article First Published at: https://www.cnbc.com/2023/07/31/61percent-of-americans-live-paycheck-to-paycheck-even-as-inflation-cools.html