Inflation is increasingly weighing on consumers, but economist Matthew Mish at UBS argues Americans have the cushion to withstand it.- He says that's due to the
savings they built up during the pandemic, and the way they've been able to bargain for higherwages .
Inflation is making everyday costs more burdensome: at the gas pump, at the grocery store, even at home. Not even rent and electricity have been safe.
It's not an easy squeeze, so it might be surprising to hear that, overall, Americans are actually positioned to hold up well against further inflation. And that's not just because the US looks poised to avoid recession.
The findings come from a recent report from investment bank and financial services firm UBS, which found that Americans — even low-income ones — are faring solidly due to the savings they accrued during the pandemic.
Matthew Mish — head of credit strategy at UBS, and lead author of the reporter — told Insider that those savings are one of three reasons inflation isn't going to overwhelm Americans. Second is the temporary nature of the additional debt many people have accrued, and third is the ongoing strength of
"Economists don't see a lot of signs of weakness," Mish said.
Detailed below are the three pieces of Mish's bullish economic argument, framed as counterpoints to other data that might suggest otherwise.
Americans might be losing some savings, but still have way more than they did pre-pandemic
Americans amassed a surplus of cash over the past two years, largely due to stimulus distributions, other pandemic aid, and a pause in spending.
The first two rounds of stimulus payments brought 11.7 million people out of poverty, according to a Wall Street Journal analysis of Census Bureau data. And at the height of the pandemic, Maria Solovieva, an economist at TD Economics, estimated that Americans had accrued $2.7 trillion in "excess savings."
But as inflation surged last year, and federal aid such as the child-tax credit ended, Americans were forced to dip into their savings more, making things especially hard for low-income households.
According to Mish, however, even though the excess savings Americans built during the pandemic disproportionately helped the top half of wealthiest people, the bottom half of the wealth distribution still benefitted as well.
He pointed to data from JPMorgan Chase, which shows that people in the bottom wealth quintile have more money in their bank accounts than before the pandemic. And Fed Distributional account data shows that debt-to-asset and debt-to-cash ratios — which essentially represent a person's ability to pay off their debt — for the bottom 50% are at their best levels since 2000. Additionally, net worth grew by about 90% for this group post-COVID, the UBS researchers wrote.
"The key takeaway is that, from a macroeconomic perspective, the lower income cohort is holding in well and not signaling signs of stress that would drag down broader spending," the researchers wrote.
Not all indicators are pointing positive, however. Last July, 34% of Americans reported having less money to fall back on in an emergency than before the pandemic, according to a Bankrate survey of 1,009 respondents. Only 17% reported having more.
Service sector workers are still seeing gains — and demonstrate strong bargaining power
Wages are going up in response to a historic labor shortage, but skyrocketing wages aren't keeping up with skyrocketing inflation, which means that effectively, Americans are losing money.
Average hourly earnings increased to $31.73 per hour in March, according to data from the Bureau of Labor Statistics, a 5.6% increase from the year before. But inflation rose at a rate of well over 8% at the same time, according to the Consumer Price Index. That means Americans took a pay cut, according to seasonally adjusted data published by the Labor Department.
But many of the biggest pay gains in the last year came in service sectors, Mish said, which include jobs in restaurants and hotels.
And those workers have a lot of leverage to secure higher pay, he said, as employers struggle to fill vacant roles.
"Wage growth has generally been higher for lower-income workers employed in the service and hospitality industries, and they have more bargaining power," Mish said.
People are going into debt, but it's likely a short-term problem
The US Census Bureau's most recent Household Pulse Survey found that Americans are building up greater credit card debt, taking out loans, and pulling from retirement and savings.
Among respondents who answered the question between March 30 and April 11, 15% said they found it very difficult to cover typical expenses in the last seven days, the survey found. Of that 15% of respondents, 44% said they're using credit cards or loans to meet their needs, while 34% said they're using money from retirement or savings accounts.
But Mish says that this is likely a temporary change, showing that Americans are taking on debt again after months of paying it off.
"Although increased credit card debt might make it look like individuals with more inflation pressure are reaching for more credit card access, it's a very short-lived trend," he said.