Rising prices are increasing the indebtedness of American families

After a year of strong retail sales, consumers are beginning to feel the impact of inflation and real income as it materializes across the economy.

Retail sales fell 1.9% at the end of 2021 as rising costs weakened holiday spending. Although some experts say holiday sales started earlier this year to avoid supply chain grunts and shipping delays, the omicron variant has prompted some people to buy online.

The slump in sales was not only evident in retail stores, but also in non-store retail, which fell 8.7% month-on-month after a slower 1-month decline. .5% in November.

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It’s the latest indicator that spending is finally starting to catch up with consumers, and now Americans are deeper in debt.

Although more than three-quarters of Americans received some form of pandemic relief, more than a third said their household financial situation had deteriorated in the past year.

According to a recent study by NerdWallet, Inc., the average US household owes $155,622, with US households holding $15.23 trillion in debt nationally. This figure is up 6.2% from a year ago.

Part of the change in sentiment surrounding financial situations can be attributed to price increases, which are starting to become more tangible, according to James Knighley, chief international economist at ING.

“The dollar in your pocket doesn’t go that far, and the very visible prices where you do regular transactions, such as food and gas, go up,” Knightley told FOX Business. “It makes people angry and cautious at the same time.”

It’s not just the higher expenses to blame. More than a third of Americans say their financial situation has deteriorated due to falling household incomes.

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“Consumers are definitely struggling to make ends meet,” Sara Rathner, credit card and travel expert at NerdWallet, told FOX Business.

With median household income down 3%, while the overall cost of living is up 7%, according to the latest CPI report, “it’s harder to afford everything you need every day, not just groceries and gas, but more important things like housing and medical bills,” Rathner said.

Even as wages rise due to price pressures and labor shortages, price growth continues to outpace the cost of living, rampant inflation eats away at wages. The average hourly wage of all employees decreased by 2.4% in December compared to a year ago, taking into account the impact of the rise in consumer prices.

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“Consumers have benefited from an enormous amount of stimulus injected into the system through fiscal and monetary policy,” Mark Hamrick, senior economic analyst at Bankrate.com, told FOX Business. “The savings rate has returned to more typical levels in recent months, but the highest inflation in decades means real wages have turned negative, weighing on consumer sentiment.”

And with the impending rise in interest rates, loans are also expected to become more expensive.

Federal Reserve Chairman Jerome Powell listens during a Senate Banking Committee hearing on Capitol Hill in Washington. (Al Drago/The New York Times via AP, Pool)

To cope with the rising cost of living, more and more Americans are reducing their needs and even relying on emergency savings.

“We really learned the importance of having a source of emergency savings, of having cash on hand for those unforeseen necessities and expenses,” Rathner said.

Despite the current economic environment where wages can’t keep up with inflation, Hamrick says that could turn into more positive momentum in the second half.

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A to study Bankrate.com finds that price pressures could peak this year.

“At the same time, many workers have been and will be inclined to try to move forward by seeking employment that pays better and offers better working conditions, including more flexible hours and opportunities for remote work. , where appropriate or possible,” Hamrick says.