Lower-Income Americans Spending Down Savings Amid Rising Inflation

Lower-earning Americans are increasingly struggling with cash as rising gas prices and higher inflation squeeze household budgets, according to recent corporate earnings calls and economic data. The personal savings rate fell to 3.6% in March—the lowest level since the “revenge spending” days of 2022—signaling that Americans are dipping into savings to maintain spending. The University of Michigan’s preliminary consumer sentiment reading, released Friday, hit its lowest level dating back to 1952, with the previous record low occurring in April.

CEO Warnings on Consumer Pressure

Multiple corporate leaders have publicly acknowledged the strain on lower-income customers. Kraft Heinz CEO Steve Cahillane told Bloomberg last week: “They’re literally running out of money at the end of the month,” and noted that “we’re seeing negative cash flows in the lower-income brackets where they’re dipping into savings.”

McDonald’s CEO Christopher Kempczinski echoed similar concerns, highlighting how rising gas prices are disproportionately hitting low-income consumers. “The pressures there are going to continue,” he said. Whirlpool CEO Marc Bitzer reported that the appliance industry is experiencing a decline on par with the financial crisis.

Income-Based Spending Divergence

Research from the Federal Reserve Bank of New York reveals starkly different spending patterns by income level. Households earning less than $40,000 cut back on gas buying by 7% in March as prices soared, with many turning to public transit or carpooling. However, because driving to work and school remains essential, lower earners still spent 12% more money on gas overall. Higher-income households, by contrast, reduced gas buying only “modestly.”

This income-based split mirrors what occurred in 2022 when prices spiked after Russia invaded Ukraine—but the gap between high and low earners is now wider, according to the New York Fed.

Mixed Signals on Economic Health

While lower-income households face clear pressures, some data suggests nuance. People spending less than $1,000 a month are now holding more savings in their checking accounts, “as they seem to be bracing for higher prices to remain in place for a while,” according to Heather Long, chief economist at Navy Federal Credit Union.

Broader economic indicators remain resilient: the latest jobs numbers showed a strong labor market, GDP growth was solid, and overall consumer spending is holding up. However, this strength is concentrated among higher earners. At both McDonald’s and Walmart, higher-income shoppers are driving most sales gains.

Walmart’s upcoming earnings report later this month is expected to provide further insight. In its February investor call, Walmart CEO John Furner said “wallets are stretched” for households earning less than $50,000, with most of the company’s sales gains coming from higher-income families—and that was before recent gas price increases.

The K-Shaped Economy

The divergence between income groups reflects what economists call a K-shaped economy: higher-income earners continue to drive overall economic growth and positive headline numbers, while lower-income households face increasingly bleak financial conditions.