U.S. Stock Market Rallies, but Consumers Keep Their Wallets Closed

Low- and Middle-Income Americans Cut Back on Spending

The U.S. stock market has continued to rally following the Federal Reserve's interest rate cuts, but foreign media reports indicate that concerns about the overall economy are also growing.

According to the Washington Post on September 20 (local time), consumer spending, which accounts for 70% of the U.S. gross domestic product (GDP), is showing signs of weakening. This trend is most pronounced among low-income households, who are most exposed to rising prices and declining purchasing power. In particular, the cooling labor market has significantly reduced spending among low-income groups. The slowdown in wage growth, which had surged during the COVID-19 pandemic, is also cited as a factor eroding the purchasing power of these households.

In addition, rising housing and utility costs are placing further burdens on low-income families. The bottom 20% of earners spend about 40% of their income on housing. Marshal Cohen of the market research firm Circana explained, "You have to take care of housing costs first before you can spend on anything else," emphasizing that housing expenses are putting significant pressure on low-income households.

Furthermore, according to the August Consumer Price Index (CPI), gasoline and electricity prices rose by 13.8% and 6.2%, respectively, compared to the previous year. Food prices in August also increased by 0.6% from the previous month, reaching their highest level in two years. In addition, reciprocal tariffs imposed during the Donald Trump administration have driven up the prices of imported goods such as clothing, toys, home appliances, and furniture.

Some consumers have chosen to cut back on non-essential spending, while others are reducing savings and taking on debt. According to a Moody's report, savings among low-income households have fallen by 22% compared to pre-pandemic levels. The middle class is also cutting back on spending. They are visiting discount retailers to find lower prices and planning major expenditures more strategically than before. As a result, sales of luxury goods, which are accessible to general consumers sensitive to changes in income, have also declined.

While the purchasing power of high-income earners, who are less affected by economic fluctuations, has remained largely unchanged, it is insufficient to offset the overall decline in U.S. consumer spending. According to Moody's, the top 10% of earners with annual incomes of $250,000 (about 350 million won) or more accounted for 49.2% of total U.S. consumption in the second quarter. This is a 3.5 percentage point increase from 45.8% in the same period two years ago, but analysts note that it is not enough to make up for the overall drop in consumer spending.

Reflecting these circumstances, U.S. companies are also adjusting their plans for the second half of this year more conservatively. Food and beverage company PepsiCo and consumer goods firm Kimberly-Clark have lowered their performance outlooks, citing tariff burdens and declining consumer spending. American restaurant chains IHOP, Applebee's, Chipotle, and Sweetgreen also mentioned in recent earnings reports that customer spending is decreasing.

Yonhap News Agency