While the economy parades around in its fancy clothes, boasting of growth and employment numbers that would make any economist impressed, the situation remains stark for low-income U.S. consumers. They’re stuck in the mud, trying to pull themselves out by the bootstraps that have long been worn thin by inflation and interest rates that show absolutely no mercy. It’s a situation that doesn’t quite fit the prosperity claimed by mainstream numbers, where it seems like the sun shines equally on everyone.
Ian Borden of McDonald’s said something instriguing at a recent industry conference that highlights the grim reality facing those at the lower end of the income ladder. With Covid savings depleted and the cost of eating at home rising, many are left with no choice but to tighten their belts a notch further. This is causing problems in sectors like fast food, which anticipates a downturn in foot traffic as a direct consequence. It’s a wake-up call that Borden says sent McDonald’s shares tumbling, but really, should we be surprised? The signs have always been there, in booming stock markets and employment stats that boast a less than four percent unemployment rate.
The Invisible Divide
Scratch beneath the surface, and the divide becomes glaringly obvious. The New York Fed’s auto loan delinquency rates offer a window into the struggles of younger borrowers, who find themselves in financial hot water at rates reminiscent of the great financial crisis. It’s kind of weird for an economy that’s supposedly firing on all cylinders. My question here is – why aren’t more companies being vocal about this discrepancy? Is it perhaps because the loudest voices in the room are those at the upper end of the income spectrum, comfortably shielded from the realities of those less fortunate?
This disparity is the reality for companies catering to the budget-conscious consumer. Stocks in consumer staples have barely moved, lagging behind the market as they struggle with the triple threat of rising bond yields, a shift away from defensive stocks, and the simple fact that their primary customer base is quite literally in a financial crisis. And the worst part is this is unlikely to ease up if interest rates continue their upward trajectory, because of an economy that just refuses to cool down.
The banking sector offers another lens through which to view this unbalanced growth. A look at the long-term trends in U.S. banking assets reveals a striking consolidation of power among the top banks, with JPMorgan Chase at the top. This shift towards greater concentration of assets among the biggest players speaks volumes about the underlying dynamics of the U.S. economy over the past two decades.
A Tale of Two Economies
What we’re witnessing is a tale of two economies: one bathed in the glow of prosperity and the other shrouded in financial hardships. The fake resilience of the U.S. economy masks the struggles of those who find themselves on the wrong side of the prosperity divide.
The dominance of institutions like JPMorgan Chase is a painful reminder that the benefits of economic growth are not distributed equally. As interest rates rise and the economic environment changes, the pressure on low-income consumers is likely to increase.
Behind every statistic, every stock ticker, and every corporate earnings report, there is the average people trying to make ends meet. The challenges they face may not always make headlines or shake the stock market, but they are the true measure of our economic health. Without addressing the needs of low-income U.S. consumers, Biden’s proud claim of economic success remains incomplete, a glossy cover over a story that’s far from over.
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