The stimulus checks are largely disbursed. New COVID-19 variants are here. Inflation is running at record highs.
Anuj Nayar, financial health officer at LendingClub, told PYMNTS that this isn’t the happiest macroeconomic news as it relates to consumer spending amid the all-important holiday shopping season.
The conversation came against a backdrop of the fifth Paycheck-to-Paycheck Reality Check report, and where data show that one in five consumers have not yet recovered economically from the pandemic’s fallout, with those living paycheck to paycheck disproportionately affected.
Read more: Uptick in Paycheck-to-Paycheck Living Pegged Mostly to Financial Fears
“We’re seeing across the board that consumers are increasingly worried about 2022 — and inflation is the primary worry,” said Nayar.
Although 81% of respondents in the latest study said they are concerned about inflation, Nayar noted that it is directly affecting half of the consumers living paycheck to paycheck.
We’ve seen an uptick in that to 57% of Americans; only a few months ago that percentage was 54%. That tally might fluctuate a bit, given the aggressive hiring that’s marked recent employment headlines.
But for those who are firmly entrenched in an existence marked by struggles to make ends meet, at least some of the child tax credit and other economic aid is being spent on food and other necessities.
The Inflation Factor
Inflation has been capturing its share of headlines. Wholesale prices came in at a record reading in December, with a nearly 10% increase. At the same time, retail spending for November showed relatively anemic growth of about 30 basis points.
We’re not in the same league as Argentina, where inflation can, and has, surged by hundreds of percentage points, depending on when you look. But no matter where you live, observed Nayar, it’s hard to prepare for any loss of purchasing power, particularly when living paycheck to paycheck.
The ripple effects can be significant, where that local restaurant suddenly must boost its entrée prices by a few dollars to cover rising input costs. The grocery store might stop offering promotions — and in some cases, even big box retailers might scale back operating hours to cut down on wages and other costs.
And, to get a sense of how purchasing power frays, in a world where inflation might be 7%, it’s almost a certainty that workers’ wage increases won’t keep pace with that 7%.
“One of the best things that you can do is to just get a ‘savings cushion’ set up and [take] control of your financial life by creating some savings to cushion you from ongoing effects of the pandemic or other crises,” he told PYMNTS.
Doing so involves freeing up money that might otherwise be going toward, say, debt service. He offered the example of a consumer who, carrying a variable-rate credit card, can consolidate that debt into a fixed rate personal loan — negating the volatility of variable rate payments.
Increased savings, he said, can do much to build up consumer confidence — and that’s essential in an economy where roughly 60% of the gross domestic product (GDP) is tied to consumer spending.
Longer-Term Trends
Subsequent reports on the paycheck-to-paycheck cycle will shed light on how things fared in terms of holiday spending, and whether concerns over inflation and virus variants dented the festivities. But Nayar noted that some longer-term trends are in place, namely that people want to be out and about, and in doing so, they want to transact.
Of course, much depends on the state of the pandemic. Should the omicron variant boost infection rates in a sustained trend, consumer sentiment will suffer.
Although small businesses have proved to be resilient and nimble (where restaurants pivoted to curbside pickup and delivery models, for example), they have to worry about cash flow and consumer demand on a daily basis too.
As Nayar said, “you can’t separate the economic effects from the overall health effects of the COVID variants.”