The American economy runs on consumer spending and for many decades that has been a good thing. Americans have access to all manner of goods and services and with the internet, things can be order online. It seems times are changing.

In an article by Ben Casselman and Colby Smith of the New York Times News Service, there is emerging or already exists a two-tier economy or a K economy. For those who have savings or money in the bank, asset values have risen, and they are wealthier than before. For those with little or no savings, the prospects are paying the bills and trying not to get too far behind.

In the article, the reporters focused on Chicago, on one hand was the shops of the Magnificent Mile similar to Rodeo Drive in LA or Fifth Avenue in New York. The luxury hotels and designer boutiques are doing brisk business.

According to Moody’s Analytics the top 10% of US households accounts for half of all spending.

Inequality narrowed during the pandemic when the government spent trillions of dollars on consumers and businesses. However, at the present, the labor market has cooled, low-wage workers have lost their leverage. Slower wage growth combined with persistent inflation means many family finances are straining. This has led to greater increases in the use of credit cards and the buy now, pay later processes. However increased use of credit generally means most do not pay off the credit cards, so higher interest payments are keeping people’s stress levels up. People are falling behind on car payments and recently a sub-prime auto lender called Tricolor filed for Chapter 7 bankruptcy a victim of bad luck, fraud and the auto loan crisis. For Tricolor, its bonds were rated AAA and now the large banks of JPMorgan Chase wrote off $170 million, Barclays wrote off $150 million and others wrote the money off. (for commentary on the bonds, Patrick Boyle’s You Tube channel offers analysis).

According to Leo Feler, chief economist at Numerator, people are consuming the basics, but they are cutting back on all the extra stuff that they were able to do during pandemic. This time it is more precarious because if they have already trimmed back, the only thing they have to trim is the basics. Which is why food banks are seeing increased usage.

In Pilsen, a neighborhood of the west side of Chicago, food bank usage is up, and because of ICE patrols in Chicago, the food bank is getting requests to have the food delivered so people do not have to venture out.

For people out of work, finding a job has already gotten far more difficult. Nearly 2 million are considered long-term unemployed, the highest since the pandemic. Job fairs are seeing increasing numbers of attendees.

Linking to dividend paying stocks, many of the companies appeal to a wide sector of people to buy their products, for example a utility offers gas and electricity to people of all income levels. The more people move from paycheck to paycheck, the higher the probability there will exist write-off’s due to bad loans. In the banking sector this is not good, and there are programs in many cities to help people keep the lights on. When you are investing, ideally you are making more money, but often you are dependent on all customers paying their bills. If you see the numbers increasing, investing in companies that collect money can be a good thing to do, because they buy the debt for pennies and collect a dime or 50 cents or even a dollar.

There are more questions than answers, till the next time – to raising questions.