Consumers are still spending, but most say their finances have suffered

Photo (c) Yuichiro Chino - Getty Images

A survey shows that 60% of adults believe the pandemic has set them back financially

The Commerce Department reported Tuesday that retail sales rose 0.9% in April, showing that consumers are still spending money in the face of higher inflation and rising interest rates. In fact, consumers have significantly increased spending since the start of 2022.

But beneath those robust numbers, a new survey finds growing consumer concern about their finances. A report by Northwestern Mutual found that over 60% of U.S. adults say the pandemic has been highly disruptive to the way they manage their finances.

Among respondents, a significant majority – 48% – say they have been able to adapt. However, 13% say they have struggled to do the same.

"This is an adaptation story – people have adjusted to the many ways the world has changed over the last two years and have emerged with some different financial priorities, habits, and points of view,” said Christian Mitchell, executive vice president & chief customer officer at Northwestern Mutual. “But progress doesn't always follow a straight line – there's been a little wobble in people's behaviors compared to last year."

Frugal habits seem to be sticking

In the first few months of the pandemic, consumers reported significant improvements to their financial well-being. In addition to government stimulus payments and enhanced unemployment benefits, consumers were closeted at home. Spending on dining, travel, and entertainment plummeted.

The bright spot in the survey shows that many consumers have maintained the more frugal financial habits they developed in the first few months of the pandemic. About 60% of respondents reported that they have been able to build up their personal savings over the last two years.

A large majority – 69% – are confident that they can maintain their new saving rate in the months and years ahead, even though overall savings have dropped 15% from last year.

"There could be several factors contributing to the drop in savings from last year ranging from spiking inflation to people spending more as they resume some sense of normalcy in their lives," said Mitchell. "But it bears watching because while people say they plan to continue saving at an elevated rate going forward, intentions don't always follow through to action."

Last month’s retail sales numbers may be an indication of that. While it’s good for the nation’s retailers, Federal Reserve policymakers are trying to bring inflation under control. They would prefer that consumers save more and spend less, at least until inflation subsides and supply chain issues are resolved.

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