Moody's warns the decline of the middle class will make 2019 a rough year for retailers
- Uneven income gains combined with rising interest will affect some households' ability to buy things, Moody's said.
- That could affect retailers' growth in 2019.
- It's another sign that wage growth stagnation has the potential to stall economic growth, and it demonstrates the impact that the death of the middle class could have.
The decline of America's middle class is starting to catch up with retailers.
While retailers have enjoyed calm seas this year, with high consumer confidence and a holiday season that looks to be record-setting, Moody's has a warning for the road ahead.
In a report released on Monday, the financial services firm warned that slow wage growth in the lower half of the job market, combined with rising interest rates, will depress the ability of some lower-income US households to purchase items from retailers.
"Since income gains have been unevenly distributed, rising interest and other costs will constrain the capacity of many households to increase consumption," Moody's writes in the report.
Read more: Amazon's emphasis on 'the Turkey 5' reveals Black Friday and Cyber Monday as we know them are dying
That will cause US consumption to grow at a slower pace in 2019 than in 2018, even as employment rates stay strong, according to the firm. Further, Moody's says rising prices and interest rates mean spending growth from lower-income households may even peak and then start to decelerate.
The firm also found in surveys that compared to high earners, lower-earning consumers are less certain about keeping their income next year, which may depress their willingness to part with their money. There's the added wrinkle of Trump's tariffs, which could make many household goods more expensive.
The woes that could come in 2019 have been a long time in the making, as the middle class increasingly gets squeezed economically and higher-income earners take a larger share of the pie. This has fueled retailers that cater to lower-earning customers, like Dollar General, McDonald's, and Walmart, while contributing to the deaths of American middle-class stalwarts like department stores.
Still, Moody's estimates that spending growth remained strong at 3% in the third quarter of this year. That's higher than the annual average of 2.3% since 2010 and will likely remain strong during the holiday season. Consumer confidence is near all-time highs, and rising income fueled much of the strong growth this year.