Michael Robert Langdon primarily shops at discount stores like Dollar Tree. However, even with prices starting at $1.25, he finds his budget increasingly limited.

A year ago, Langdon’s monthly expenses for food and toiletries at these dollar stores were about $150. Now, he spends roughly $80 each month. He attributes this decline to inflation impacting his finances. Although he lives in low-cost housing, his one-bedroom apartment in Arcata, California, consumes about a third of the nearly $1,000 he earns monthly from Social Security Disability Insurance and survivor benefits.

Langdon, 70, stated to YSL News, “People facing poverty really need to budget tightly here. Prices are very high, and housing is in short supply.”

Langdon’s situation contrasts with broader national trends, which indicate strong consumer spending across the U.S. despite ongoing inflation and high interest rates. Yet, not all consumers are finding relief when they check out. Experts point out that as the job market slows and renters grapple with increased housing costs, certain segments of the population still face significant challenges.

According to Michael Pearce, Deputy Chief U.S. Economist at Oxford Economics, there are “pockets of weakness in an otherwise robust consumer landscape” that are driven by spending from middle- and upper-income groups. “Consumer performance varies significantly by income and wealth,” he noted.

Dollar General declares its customers as ‘financially constrained’

The divide among consumers is evident in the earnings reports of different companies.

Last week, Dollar General reduced its full-year sales forecast after revealing that same-store sales had only increased by 0.5% year-over-year in its latest quarter, falling short of expectations.

Typically, discount stores thrive during economic downturns, but they are facing growing competition from major retailers like Walmart and Target that are lowering prices, according to Neil Saunders, director of the analytics firm GlobalData.

Dollar General also reported that many of its core shoppers, who typically earn less than $35,000 a year, are becoming “financially constrained.” CEO Todd Vasos revealed that around 60% of their main customer base is cutting back on essential purchases due to rising prices and the escalating costs of housing, utilities, and healthcare.

Vasos mentioned during a recent earnings call, “Our customers are finding it harder to manage their budgets until the end of the month.” He explained that while middle- and higher-income families are also looking for value, they do not experience the same level of financial pressure as those with lower incomes.

The earnings of the bargain store reflect a “mixed bag” of retail performance for the latest quarter, according to Saunders.

Other retailers that cater to low-income customers, such as Dollar Tree, Five Below, and Big Lots, have also seen their stock prices drop this year.

Five Below reported a 5.7% decrease in same-store sales last week, with interim President and CEO Kenneth Bull commenting on the poor performance of its lower-income customer base.

Dollar Tree, which operates both the Family Dollar and Dollar Tree brands, experienced a decline in shares after reducing its full-year forecast. The company pointed to heightened financial strain on both middle- and higher-income shoppers, with Chief Operating Officer Michael Creedon stating that demand from Family Dollar’s core lower-income customers “is still weak.”

Chief Financial Officer Jeffrey Davis added, “Currently, Family Dollar customers are facing significant financial pressures.” He pointed out that these customers are utilizing multiple payment methods, including government assistance and credit when necessary.

In contrast, retailers that focus on wealthier clientele have shown stronger performance. Best Buy’s share price is outperforming the S&P 500 this year, and Target recently reported a nearly 3% increase in revenue in its latest quarter.

“Consumer responses and feelings are highly influenced by personal circumstances,” Saunders remarked to YSL News. “While some people are managing well, others are really struggling, leading to significant disparities visible in retail trends.”

An uneven economic recovery

According to LPL Financial Chief Economist Jeffrey Roach, a period of “strong income growth” has benefited American consumers. Consumer confidence reached a six-month peak in August, and spending rose by a solid 0.5% in July, even with hints of decreased discretionary spending.

However, there are signs of weakness emerging.

Credit card debt has risen by 5.8% compared to last year, with Americans now carrying a historic $1.14 trillion in credit card debt and experiencing higher delinquency rates, according to an August report from the Federal Reserve Bank of New York. Furthermore, Census Bureau data indicates that an increasing number of households reported experiencing food insecurity: 11.4% of the population stated they sometimes or often lacked enough to eat in July, up from 10.4% in January.

“Overall, the average American consumer is doing fairly well,” commented Bill Adams, chief economist at Comerica Bank. “Yet, there are significant disparities among different demographic groups in our country where many people continue to face hardships.”

Many individuals are facing difficulties due to inflation or are not reaping the rewards of wage increases.

Economists point to homeownership as a significant factor contributing to this disparity.

Homeowners, particularly those who secured a low mortgage rate before the Federal Reserve raised interest rates, have enjoyed stable housing costs and an increase in personal wealth. According to real estate company Zillow, U.S. home prices have surged by approximately 50% over the past five years.

In contrast, Zillow’s data indicates that rents have escalated by about 35% during the same timeframe, putting pressure on renters’ finances.

“Consumers who purchased homes five or ten years ago and have consistent housing expenses are experiencing inflation very differently compared to those renting or trying to save for a down payment now,” Adams stated.

Pearce from Oxford Economics mentioned that investment gains in the stock market have also played a role in increasing household wealth to unprecedented levels, with the S&P 500 climbing over 15% this year.

However, lower-income families often do not benefit from these financial gains. An April Gallup survey revealed that only 25% of the lowest-income households, earning less than $40,000, owned stocks. Additionally, less than half of households making under $30,961 last year owned homes, unlike 81% of the highest-earning households, according to the Federal Reserve Bank of Minneapolis.

Pearce noted that the slowing labor market is adding more strain on lower-income consumers who rely heavily on the job market’s health.

“The impact of the slowdown will be most significant in sectors where average wages are lower,” he explained, highlighting industries like retail and hospitality. “Those working in these areas are feeling the pinch of diminishing income more acutely. Therefore, lower-income households are under considerable pressure.”

On a positive note, Pearce suggested that if the job market remains steady and inflation continues to decline, “this could bolster spending, including from lower-income individuals, over the coming years.”