'Spending more and getting less': How the pandemic, inflation take a financial toll on families
- Consumer spending rose at a booming 12% in the second quarter.
- Purchases had surged due to stimulus checks, robust job and wage growth and pent-up demand.
- But inflation means consumers are retreating from spending at department stores, restaurants, and online.
In 2019, Nicole Gleaton knew she would make some cutbacks after her family moved into a new home in suburban Atlanta.
But the sixth grade language arts teacher and her husband didn't know they'd have to significantly stretch their earnings as costs for goods ranging from groceries, gas and school supplies steadily climbed while a global pandemic continued to wreak havoc.
With the increased expenses, Gleaton said they now have to readjust their modest budget even more as her oldest daughter, who's 21, lives on campus at a nearby college. And their youngest, who's 16, just got her driver's license, likely raising Gleaton's auto insurance rates.
"I'm spending more and getting less in return across the board; we all are. Supplies are limited," Gleaton, 47, said. “But these are the sacrifices I have to make to keep my head above water."
She's not alone. As inflation pushes up costs, Gleaton and three others discussed why they're spending even more than they did prior to the rise of COVID-19 for the same amount or fewer products and services.
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Consumers spend more
Consumer spending after adjusting for inflation, grew at an annual rate of 2% from July through September, down from a booming 12% in the prior three months, amid sharply climbing prices and supply chain snags.
Purchases had been surging because of several rounds of federal stimulus checks, robust job and wage growth, and pent-up demand amid a reopening economy. Consumer outlays are critical because they make up about 70% of economic activity.
"It is an important driver of overall trends in the economy, including in the labor market," says Jim O'Sullivan, a chief U.S. macro strategist for TD Securities.
But inflation is starting to crimp Americans' spending binges.
Last week, the U.S. Labor Department said the consumer price index jumped 7% in 2021, the fastest pace since 1982. That's up from 6.8% annually in November, which was also a nearly four-decade high.
Rising wholesale prices are leading businesses to pass more costs on to shoppers. As a result, consumers are retreating from spending at places like department stores, restaurants, and even online because of both sticker shock and product shortages stemming from the supply snarls.
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Grappling with inflation and omicron
Besides inflation's impact, households must grapple with the continuing spread of the omicron variant.
In December, retail sales declined for the first time in five months, largely because of surging prices, bare store shelves and omicron.
Stimulus money will fade
In 2022, TD Securities' O'Sullivan expects household spending and economic growth will remain solid but slow compared with 2021 as the government's fiscal stimulus fades.
And while Americans in total have saved an extra $2.3 trillion from stimulus checks and staying home a lot during the health crisis, most "middle- and lower-income households haven't saved that much," says Kathy Bostjancic, an economist with Oxford Economics.
And what they have socked away will likely be depleted by early this year, Bostjancic says.
That reflects the experience of True, Gleaton in suburban Atlanta said.
"It's very hard, but it could be worse," she said, estimating that she's spending at least 30% more than she did two years ago – but chiefly because of higher prices.
Jason Flores shares that sentiment. The Austin, Texas, resident noticed that his weekly grocery bill had gone from between $70 to $80 to double that. The same with buying gas..
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The price spike comes as a big surprise for Flores, a technology sales rep whose family moved to Austin from San Francisco to take advantage of the lower cost of living two years ago and before the pandemic.
"I told my wife that it feels like it happened almost overnight," said Flores, 48. "I even said to myself, 'Holy cow, everything is getting super expensive here!'"
Gasoline, for example, has had one of the biggest year-over-year increases at 58%, according to the American Automobile Association. The average price per gallon for unleaded gas is $3.30, compared to $2.38 a year ago, AAA said.
Flores said his weekly "creature of habit" grocery run included buying steak.
"Not anymore," Flores said. "There's no scaling back. I just don't buy steak anymore. It keeps my food bill down a bit."
In November, prices rose 6.4% annually for groceries, with jumps of 13.9% for beef, 16.8% for pork, 8.4% for chicken and 8% for fish.
Buying goods, not experiences
Nathalie Collins thinks that the $20 T-bone steak she's now paying for is because of both the pandemic and supply chain problems. That exact steak cost between $15 to $17 a year ago.
Collins, 50, a senior lecturer of business and law at a college in Australia who's currently on leave studying in Raliegh, North Carolina, believes that scarcity leads her and other hard-working people to make tough decisions.
"I can afford that $20 T-bone if I want to, but at times, I have to think and say, 'Do I really want to buy this?'" Collins said. "So, there are many of us who aren't as fortunate."
The supply shortage only exacerbates the problem, Collins said.
"It's not so much the steak that’s $5 higher, but there's not many that are $3 less. These are the choices we have to make," Collins said. "We're all being forced in some way to decide how we spend our money."
Sarah Armstrong, 25, said she's spending more these days, but she considers it an investment for her future.
When the public relations account executive in Austin, Texas, got her first job out of college two years ago, she rented an apartment and did some traveling. She also went out to restaurants and concerts with friends.
Then the pandemic hit and Armstrong quickly pivoted. After she started working from home, happy hours with co-workers became virtual, and cooking in became the norm, along with buying kitchen appliances, including an espresso maker.
In other words, like many, she shifted her spending from services to goods. Armstrong soon met her boyfriend, Austin Vandiver, 27, who works in logistics at a nearby startup. The couple bought a house together last June and then a second property they may rent out, taking advantage of a seller's market in Austin, where the average price of a home has risen 23% from 2020 to about $579,000, according to Realtor.com.
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Now that they've purchased their home, "We are definitely ready to save more," Armstrong says.
She said they'll be spending less on entertainment and travel and focusing more on home improvement. Armstrong said the couple plans to hold on to what they have and prepare to save more if costs will continue to increase over the next three to five years.
"A hope for the best, prepare for the worst mentality if you will," she said.
Trying to stay optimistic
Gleaton's family similarly bought their home , thinking it would be an excellent investment during trying times. She recalled their realtor urging them to "jump on it now" because the price would rise.
"Sure enough, it did," Gleaton said.
Now, Gleaton said she gets inquiries to sell their home, which has increased in value with the hot market. Gleaton insists they have no intention to sell, especially with so much uncertainty caused by the pandemic and the costs that may come with it.
"I’m hoping things will get better," Gleaton said. "It has to get better!"