American consumers – the backbone of the post-pandemic recovery – are losing the means to maintain spending. Signs were already evident in the uneven pace of spending growth in recent months.

Things became crystal clear in earnings data reported by the Commerce Department. Households are already sacrificing savings flows simply to keep up with current spending rates, let alone increase them. The future can only see spending slowdowns and likely cuts that will slow or halt the overall pace of economic growth.

Granted, the top income numbers still look good. A steady pace of hiring and decent wage growth has so far this year pushed paycheck income up 9% at an annual rate. This even exceeds the unreasonably high rates of inflation plaguing the country. Homeowners’ incomes have lagged, growing only at an annual rate of 3.5%. Clearly, rising costs have eroded any gains these companies could have made from rising prices.

Farmers have seen their incomes increase at an astronomical annual rate of 373.4% due to the general increase in food prices and, of course, the special price increase caused by the lack of Russian and Ukrainian grain deliveries. . Of course, this has a negligible impact on the overall revenue tally. Farmers represent only a small part of the total.

On these bases, consumer spending would seem capable of continuing, but that is not all. Investment income took a hit. The Commerce Department reports that it has only grown at an annual rate of 3% so far this year, well behind inflation.

Despite the tendency to dismiss such shortfall as a problem for the (non-deserving) “rich”, investment income primarily concerns retirees who depend on it for the necessities of life. It typically constitutes between 13 and 15% of all household income, so the shortfall here is significant for both accounting and human reasons. Government transfers, typically between 18 and 20 percent of total household income, have also lagged.

To be sure, Social Security, Medicare, and Medicaid payments continue to grow at a rate close to inflation. But the flow of unemployment insurance dollars has slowed, thankfully because of job growth, while emergency COVID payments have fallen by more than half.

And taxes have drastically reduced household spending. With soaring hiring and wages, payroll tax collections have risen disproportionately, growing at an annual rate of 10% so far this year and taking a good chunk out of the gross income people have at their discretion. At the same time, income taxes have also risen disproportionately as this country’s progressive tax system levies at an increasing rate on every dollar of additional income.

Taking all of these considerations into account, overall after-tax household income — what the Commerce Department calls disposable income — has only grown at an annual rate of 5.8% so far this year. And since this rate of expansion is below the rate of inflation, real disposable income has decreases during this period at an annual rate close to 2.0%. It’s not the stuff of a continuous boom in consumer spending of the kind that has characterized the economy for the past 18 or so months.

The tension is already evident. Just to sustain even the recently slowed pace of consumer spending, households have started to sacrifice savings flows. These fell precipitously. By the end of 2021, for example, households increased their savings at an annual rate of $1.5 trillion, setting aside some 8.4% of their total income. According to the latest data, that pace fell to $1.2 trillion, or just 6.2% of revenue, or an annualized rate of decline of 67.5. People can’t go on like this for long. They will have to slow down or reduce their spending rates.

The anticipated budget cuts should be less drastic than those experienced during the great painful memory recession of 2008-2009. But the negative direction is nonetheless clear. Spending will slow and, at times, decline, as inflationary pressures will likely persist for some time.

Even if the economy is lucky, avoids recession, and experiences what the financial media likes to call a “soft landing,” the impressive pace of post-pandemic recovery that all have become accustomed to will slow dramatically in the second semester of this year. and until 2023.

The opinions expressed in this article are the opinions of the author and do not necessarily reflect the opinions of The Epoch Times.


Milton Ezrati is editor-in-chief of The National Interest, an affiliate of the Center for the Study of Human Capital at the University at Buffalo (SUNY), and chief economist for Vested, a New York-based communications firm. Prior to joining Vested, he was Chief Market Strategist and Economist for Lord, Abbett & Co. He also writes frequently for the City Journal and blogs regularly for Forbes. His latest book is “Thirty Tomorrows: The Next Three Decades of Globalization, Demographics, and How We Will Live”.