Another sign of an impending recession? The ‘financial health’ of Americans fell for the first time in five years

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Are you behind on your utility bills? Do you have enough reserves for a rainy day?

Fewer than a third (31%) of Americans are “financially healthy” in 2022, down 3% from a year ago, according to the latest Financial Health Pulse 2022 US Trends Report. More than half (55%) reported that they were “coping financially” and 15% described themselves as “financially vulnerable”.

A “financially healthy” person spends less than they earn, pays bills on time, and has enough liquid savings and long-term savings. The survey is based on responses from 6,595 respondents between April 2022 and May 2022.

In 2022, 79% of people said they spend less than or equal to what they earn, down 6 percentage points from last year and the lowest in the five years the survey has been in existence.

The proportion of Americans able to cover at least three months of living expenses also fell to 58% in 2022 from 61% last year, with only 40% of people saying they were confident and on track to achieve their goals. long-term financials, compared with 43% last year.

In 2022, 79% of people said they spend less than or equal to what they earn, down 6 percentage points from last year and the lowest in the five years the survey has been in existence.

Although the declines affected nearly all income groups, most of the decline appears to come from the demographic traditionally considered safe, said Angela Fontes, head of research for the Financial Health Pulse report.

“We really see substantial declines in moderate-to-high-income people,” Fontes told MarketWatch.

The largest decline (7 percentage points) was among people with annual incomes between $60,000 and $100,000, according to the survey. The next largest drop, 4 percentage points, occurred among the group earning $100,000 or more.

Compared to the last two years, people’s financial gains have eroded, Fontes said.

Since the beginning of 2020, a variety of government programs, such as expanding the child tax credit, improving unemployment benefits, and stimulus checks, have helped households. Now that most of those programs have ended, households have started to see a decline.

The reason could be twofold: inflation and market volatility, Fontes said.

Inflation rose 8.5% in July compared to a year ago, a 40-year high. Low-income households have made a bigger impact from price increases as they spend most of their income on essentials like gas, food and utilities.

Grocery inflation reached 13.1% in August, the highest since 1979. Two-thirds of consumers (64%) said they were concerned about their ability to pay for groceries at least once in the past month, according to a recent LendingTree survey.

At the same time, some low-income households were changing what they put on the table, avoiding meat and switching to bean and vegetable soups.

Middle-earners began to feel the pressure to cut back on discretionary spending like clothing and electronics, and Dollar Stores reported the arrival of a higher-earning customer.

Mark Wolfe, executive director of the National Association of Energy Assistance Directors, recently told MarketWatch that more than 20 million households were between 30 and 90 days late on their utility bills, which skyrocketed last year because Energy prices increased largely due to Russia’s war in Ukraine.

People with average incomes began to feel the impact by cutting back on discretionary spending, such as clothing and electronics, according to a study. recent morning consult report. Dollar stores have also reported the arrival of a younger customer with higher income.

All of this adds to growing fears of a recession. goldman sachs gs,
+0.73%
researchers put the implicit risk in the market of a recession in the US. starting within a year at 37%.

At the top, Fewer people are applying for unemployment benefits. They fell in mid-August with layoffs remain near an all-time low. And the US added a surprisingly strong 528,000 jobs in the course of July.

Another good sign: The Philadelphia Fed said last month your gauge of regional business activity it rose to 6.2 in August from negative 12.3 in the previous month. Any reading above zero indicates an improvement in conditions.

Still, while rising property costs hit lower-income households more directly, volatility in stock markets over the course of 2022 is taking a toll on higher-income households, Fontes said.

Fidelity reported that average retirement balances have decreased for two consecutive quarters.

The S&P 500SPX,
+1.06%
is down 15% year-to-date, while the Dow Jones Industrial Average DJIA,
+0.71%
is down 12.6% and the Nasdaq

comp,
+1.27%
it is 23.5% lower.

However, for low-income people, wage increases and job changes have helped provide some shelter. In addition, labor shortages in industries such as retail and services pushed up the wages of lower-paid workers.

But inferior workers remain vulnerable to economic shocks, Fontes said. “It’s hard to fall off the floor,” he said, adding, “There’s nowhere to go down from there.”

See also:

When Hiring Slows, Black Workers Are Pushed So Far Back They Quit’: Why Fed Rate Hikes Put Black Jobs at Risk

Hit by inflation, parents flock to community back-to-school ‘supply drives’ to buy notebooks, pens and clothes

‘All this puts parents in a bind’: Sharp spike in deli prices adds to parents’ back-to-school stress

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