Low-income families in America struggle to meet their basic needs

By the time the Pilsen Foods store in Chicago opened its doors, Ulysses Moreno had spent two hours there, with a line of shoppers stretching for meters behind him.

“This is a lifeline for me,” said Moreno, 39. He had lost his job in the construction sector a few days ago, and with three teenagers at home, he wanted to make sure he could store food. “Our budget for food is no longer as sufficient as it was before,” he said.

A few miles away, on Chicago’s glittering Magnificent Mile, luxury hotels are bustling with activity, jewelry stores and designer boutiques are bustling, and restaurants are bustling with customers dining on fine dining.

conflict

For Evelyn Figueroa, a family physician who founded and runs Pilsen Food Store, this contrast is striking. “For people like me, who own homes and work, the economy is in great shape,” she said. “How is the economy?” “It depends on who you look at.”

The gap between rich and poor is not new, neither in Chicago nor in the rest of the United States, but it has become more apparent in recent months, as wealthier Americans – buoyed by an ever-record stock market – have continued to spend lavishly.

Low-income families, suffering from persistent inflation and facing a labor market that is losing momentum, are declining.

Moody’s, an institution for economic research and financial analysis, recently estimated that 10% of American households now account for about half of total spending, which is the highest share since the late 1980s.

Consumer confidence has risen among high-income people, but has declined steadily among other groups.

Clear division

“This is not just an inequality story, it’s a macroeconomic story,” said Lindsay Owens, executive director of the progressive policy group Groundwork Collaborative. “As the wealthy continue to consume, it masks more insecurity and instability in the underlying economy.”

This division is clearly evident across sectors, with wealthy travelers accepting higher-priced seats in first and business class, while airlines struggle to fill the cheaper seats at the back of the plane.

Credit card companies compete to offer expensive cards to high-income earners who pay annual fees in exchange for exclusive privileges, while low-income families in Chicago and the rest of the country struggle to pay off their minimum debts. Even executives at companies that focus on attracting audiences are noticing this trend, and in some cases expressing concern about its repercussions.

McDonald’s CEO Christopher Kempczinski said in a recent interview: “Visits by low-income consumers to our restaurants have declined again, by a double-digit percentage since the beginning of this year, compared to the same period last year.”

He added: “This divided consumer base is the reason why we remain cautious about the general direction of the American consumer in the near term.”

Intense competition

Social inequality was reduced by numerous measures during the Corona pandemic, when trillions of dollars in government aid flowed to families and businesses, and many companies provided additional wages to employees who were unable to work from home.

When the US economy began to reopen, intense competition for labor led to rapid wage growth, especially in low-wage sectors, where demand for labor far exceeded supply.

But as the labor market has slowed, low-wage workers have lost many of these advantages.

Hourly wages are rising more slowly for lower-wage workers, reflecting the pandemic, according to data from the Atlanta Federal Reserve.

Slowing wage growth, coupled with persistent inflation, is weighing on American families. Americans are increasingly relying on credit cards and other forms of borrowing to pay their bills, and more of them are falling behind on their car loans and credit card payments.

These pressures have not resulted in widespread defaults, bankruptcies or foreclosures, but high debt means that even people who keep up with payments have little room to borrow more if the cost of living rises or their incomes fall.

Exacerbating challenges

Spending data from Niemreiter, a consumer research firm, shows that low-income households have cut back on purchases, leaving them with little margin of safety.

“People are still consuming basics, but they are cutting back on all these extra things they were able to do after the pandemic,” the company’s chief economist, Leo Feller, said.

He explained, “The situation is more dangerous, because if we actually reduce all these excess things, the only thing left to reduce is the necessities.”

Pressure on low-income families had been increasing long before President Donald Trump returned to office, but some administration policies have exacerbated the challenges, especially in some communities.

Farmers have been severely affected by Trump’s trade war against China. Federal workforce reductions have negatively impacted Northern Virginia and other parts of the country that rely heavily on government employment, impacts that have been exacerbated by the recent government shutdown. Immigration raids also weigh heavily on industries that depend on foreign-born workers and on companies that view them as clients. About the New York Times

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Increasing demands

In the predominantly Latino neighborhood of Pilsen on Chicago’s West Side, its bustling streets have finally calmed down amid tightening immigration procedures.

Signs written in Spanish remind residents of their legal rights. Local companies confirmed that they are witnessing a decrease in the number of customers.

The owner of the “Pilsen” store, Evelyn Figueroa, said that her food store is receiving increasing requests to deliver groceries, because families are afraid to go out.

• %10 US households account for half of total spending, the highest share since the late 1980s.

• Slowing wage growth, coupled with persistent inflation, is weighing on American families.

A• Social inequality shrank during the pandemic, when trillions of dollars in government aid flowed to households and businesses.

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Sources of fragility

The suffering in Chicago’s suburbs and other US cities has remained largely hidden in macroeconomic data, at a time when consumer spending continues to outpace inflation and as household debt levels rise, but are manageable, relative to Americans’ incomes.

General measures, such as gross domestic product, indicate a slowdown in the US economy, but it is still fundamentally healthy, which has surprised many experts and observers.

However, this flexibility increasingly depends on a limited number of well-off families. Economists at the Boston Federal Reserve recently found that consumer spending growth since 2022 “was driven by higher-income consumers.” “By contrast, growth in spending by low-income consumers was much weaker,” the researchers noted.

The author of the Boston Federal Reserve study, Deren Patki, warned that this discrepancy creates sources of fragility, explaining that with all this reliance on high-income earners, the economy may suffer if stock prices decline or another shock occurs. He added that low-income families are already experiencing financial hardship, making them vulnerable if the weakness of the labor market worsens.

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Widening gaps

This contradiction in American consumer society represents a challenge to policy makers at the US Federal Reserve (the central bank). Strong consumer demand may keep pressure on prices while tariffs fuel concerns about inflation, but if the Federal Reserve keeps interest rates high to combat inflation, the gaps forming in the labor market could widen.

The unemployment rate has gradually risen in the United States in recent months, but it remains relatively low at 4.3% in August, according to the latest data available so far, because the federal government shutdown delayed the release of September numbers.

Hiring has slowed significantly in recent months, but companies, for the most part, are keeping their employees.

In addition, MasterCard’s chief economist, Michelle Mayer, warned that if companies start making widespread cuts, the picture could quickly become bleak.

“If we do see an increase in dismissals, if we see an increase in the unemployment rate, if we see wages start to slow significantly, then I think even if the support for families continues, the line is shifting very quickly,” she said.