Another sign of a looming recession? The “financial health” of Americans declined for the first time in five years

Are you late in paying your utilities? Do you have enough to set aside for a rainy day?

Less 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 being “financially able to cope” and 15% described themselves as “financially vulnerable”.

A “financially healthy” person spends less than he earns, pays his bills on time, and has sufficient cash and long-term savings. The survey is based on the responses of 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-year survey.

The share of Americans able to cover at least three months of living expenses also dropped to 58% in 2022 from 61% last year, and only 40% of people said they were confident and on track to achieve their own. long-term financial goals, down from 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-year survey.

While the decline has affected nearly all income groups, most of the decline appears to stem from the fact that demographics are traditionally considered safe, said Angela Fontes, head of research for the Financial Health Pulse report.

“We really see substantial decreases occurring among middle-to-moderate and high income people,” Fontes told MarketWatch.

The survey found that the largest decline – 7 percentage points – was among people with annual income between $ 60,000 and $ 100,000. The next biggest drop – 4 percentage points – occurred among the group that earned $ 100,000 or more.

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

Since the beginning of 2020, a series of government programs such as the extension of the tax credit for children, the increase in unemployment benefits and stimulus checks have helped families. Now that most of these programs have ended, families have begun to see a decline.

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

Inflation rose 8.5% in July from a year ago, a 40-year high. Low-income households have been most impacted by rising prices as they spend most of their income on essential goods such as gas, food, and utilities.

Food 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 food at least once in the past month , according to a recent LendingTree survey.

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

Middle earners began to feel the problem as they cut down on discretionary spending like apparel and electronics, and Dollar stores signaled the arrival of a higher earning customer.

Mark Wolfe, executive director of the National Energy Assistance Directors Association, recently told MarketWatch that more than 20 million households were 30-90 days late with their bills, which have soared in the past year due to the increase. in energy prices largely due to the Russian war in Ukraine.

According to a recent report by Morning Consult, middle-income classes began to feel the problem when they cut down on discretionary spending like clothing and electronics. Dollar stores also reported the arrival of a younger, higher earning customer.

All of this adds to growing fears of a recession. Goldman Sachs GS,
+ 0.73%
Researchers estimate the market implied risk of a US recession starting within a year at 37%.

On the upside, fewer people are applying for unemployment benefits. They fell in mid-August with layoffs remaining close to an all-time low. And the United States added a surprisingly strong 528,000 jobs over the course of July.

Another good sign: The Philadelphia Federal Reserve said last month its regional trade activity indicator rose to 6.2 in August from a negative 12.3 the previous month. Any reading above zero indicates improving conditions.

However, while rising cost of goods affects low-income households more directly, volatility in equity markets over the course of 2022 is hitting higher-income households, Fontes said.

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

The S&P 500 SPX,
+ 1.06%
is down 15% so far this year, while the Dow Jones Industrial Average DJIA,
+ 0.71%
is down 12.6% and the Nasdaq COMP,
+ 1.27%
is 23.5% lower.

For low-income people, however, wage increases and job changes have helped provide shelter. In addition, labor shortages in sectors such as retail and services have caused the wages of the lowest paid workers to rise.

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

See also:

When hiring slows, black workers are pushed back so far they quit: why Fed rate hikes will jeopardize black jobs

Injured by inflation, parents flock to back-to-school community ‘supply units’ for notebooks, pens and clothes

“All this puts parents in trouble”: a sharp rise in the price of meat for lunch adds to the stress of parents for back to school


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