The American middle class is regaining purchasing power after a year and a half of the highest inflation in decades.
But it still falls short of pre-pandemic levels.
new Primerica Household IndexThe spending power of middle-income households (defined as households earning between $30,000 and $130,000 a year) rose to 97.5% in July, up from 97% the previous month, according to a survey by a financial services firm.
However, this improvement is still below the index’s baseline of 100%, which occurred in January 2019. A figure below this threshold indicates a lack of consumer purchasing power.
The modest increase comes after credit card debt surpassed $1 trillion for the first time last month, and a set of recent data showed more consumers were having trouble paying their debts on time. It is a result of receiving.
Read more: Personal Loans and Credit Cards: What to Use in an Emergency?
“Some people are crawling out of the post-pandemic lows. Inflation has slowed and working incomes are starting to rise. Both are positive compared to before,” Mr Primerica said. CEO Glenn Williams told Yahoo Finance. “I think the important thing to recognize is that while things are not getting worse as quickly as they used to, they are not necessarily getting better.”
“The family has been underwater for 44 months.”
Inflation has submerged middle-income households for more than a year, according to data from Primerica.
American Airlines’ purchasing power fell from a high of 102.8% in November 2020 to a low of 85.6% in June 2022, according to the study. The decline represents six years of gains in purchasing power lost in 18 months, Williams said.
Last June’s sharp decline coincided with a rise in consumer prices 9.1%Households have yet to fully recover from the blow, although inflation has slowed since then.
“The index has yet to return to 100. And reaching 100 simply means that the family has enough earned income to cover their expenses in the month,” Williams said. . “They couldn’t make up for lost ground.”
Of the 55 months covered by the index going back to 2019, middle-income households were in a spending deficit for about 44 months, according to Primerica data.
“For 44 of those months, the family was in the water, meaning they didn’t have enough income to cover their expenses,” Williams said. “The spending is done by withdrawal of savings or use of credit.”
“The success we are starting to see is very fragile.”
Households have improved to some extent, but the improvement may not last long.
Credit card balance goes flat $1.3 trillion, up 4.6% from a year earlier, the New York Fed said earlier this month.Similarly, the St. Louis Federal Reserve has determined that outstanding credit balances surpassed $1 trillion. Both indicators hit record highs.
Another study found that 51% of credit card borrowers were unable to pay off their full monthly balance, carrying the debt over to the next month and accruing interest. The JD Power researchers said it was the first time the percentage of Americans paying off their debts by revolving was higher than the percentage of Americans paying their bills on time, the JD Power researchers said. pointed out.
And Macy’s said last month that credit card sales fell 36% in the second quarter, wiping out much of the balance bloated by consumers who couldn’t pay their bills.
“I think the success we’re starting to see is a very fragile one, and the credit card balances that we’re at at record levels today are the last 44 months for my family to be underwater.” I think it’s directly related to the fact that it was sinking in,” Williams said. “Their income wasn’t keeping up with inflation, so they used credit cards every month to make up the difference.”
Credit card interest rates have risen to record highs as the Federal Reserve (Fed) tries to curb inflation. Average credit card interest rates are now over 20%, matching the highest level in 38 years, according to Bank Rate.
Interest accrued can add up quickly for those with revolving credit debt. For example, if he has a 20.60% annual credit card on his credit card and he wants to pay off $3,000 in debt within 24 months, he will pay $153 each month. During that time, you will accrue approximately $685 in interest. It is cash that can be used for other expenses.
The economic situation for many young Americans has worsened as the federal student exemption program ends in October.according to ExperianThe average student loan borrower will have to pay $203 when payments resume.
“So there are challenges from the past, which I think are directly related to credit card balances, but also other potential challenges for the future. The challenge we’re facing is the beginning,” the sum of loan payments and student loan payments,” Williams said.
“Major progress is still needed to keep these families out of harm’s way.”
Gabriela is a Personal Finance Reporter at Yahoo Finance. follow her on her twitter @__Gabriela Cruz.
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