Unbearable

Recent data suggests that the U.S. economy isn’t going into a recession anytime soon. These higher-income households saved so much money during the pandemic that they seem relatively unfazed by inflation, continuing to shop, eat at restaurants, and travel, despite rising prices. But low-and middle-income households have run through the savings they accumulated during the pandemic, Zandi says, and are reeling from high prices. They are also finding that it’s getting more expensive to push back a credit-card payment a month or two.

“For families at the lower end of the income spectrum, shifting the burden of debt on a monthly basis can rapidly become unbearable,” says Gregory Daco, chief economist at EY Parthenon. He predicts a K-shaped consumer-spending pattern this year, with higher- income households continuing to spend while lower-income households slow their economic activity.