Affluent Consumers Temper Spending as Recession Concerns Mount

The latest data from the Federal Reserve released Monday (May 8) show that consumers think inflation’s here for the long term.

And higher-income households are tempering their spending expectations.

As detailed in the April “Survey of Consumer Expectations,” report, the data show that median household spending growth expectations decreased from 5.7% in March to 5.2% in April, the lowest reading since September 2021. And drilling down a bit, the Fed found that the decline was “driven by respondents with a household income greater than $50,000.” Consumers who make between $50,000 to $100,000 expect that spending will grow by 5.1%. For households making more than $100,000, the expectations dip to 5%, where they had been as high as 5.8% as recently as September 2022.

Higher Income Households Gird for Inflation 

As for expectations for inflation, short-term horizons show that expectations have been tempered a bit. Consumers expect inflation to grow by 4.4% through the year ahead, at the median, which is better than the 4.7% expected in the last reading for March.  

But: Consumers who make between $50,000 to $100,000 see those inflation expectations at 4.9%; for those making above $100,000, the expectations are that inflation one year ahead will touch 4.4%.

Median expected growth in household income decreased by 0.2% point to 3.1%, below the series 12-month trailing average of 3.6%.

Debt delinquency expectations remained mixed. The mean probability of consumers stating they might not be able to make a minimum debt payment over the next three months was 10.6% in April, down 0.3% from March. For higher earners above $100,000, the corresponding percentage grew from 5% in March to 6.6% in April.

Connecting the dots reveals that middle- and higher-income consumers expect to see their wage growth slow, think they may be at risk of making debt payments, and expect inflation to grow — so it may not be any wonder that they expect to temper their spending habits.

Recent PYMNTS data show that 65% of middle-income consumers lived paycheck to paycheck. Among high-income consumers — those earning more than $100,000 annually — the share of those living paycheck to paycheck remained steady at 49% in March 2023, as measured from a year ago.

Separately, 69% of consumers report they have reduced nonessential spending on retail products specifically because of high inflation. As many as 40% of consumers have switched to less expensive clothing retailers, and 26% have started buying lower-quality clothing. For consumers making more than $100,000 annually, two-thirds have reported that they’ve cut back on retail spending due to higher prices, and nearly 56% of consumers in this income bracket said the same thing about grocery purchases. A bit more than 17% of high earners said that switching to a less-expensive merchant has been among the most important shifts they’ve made in response to those surging prices; 20.4% said the same for groceries.