Why the Labor Economy Turns to Credit to Keep Spending

Core Insights - The U.S. Labor Economy, comprising roughly 60 million workers earning less than $25 an hour, significantly impacts consumer spending, accounting for about 15% of total U.S. consumer spending [1][5] - Recent data indicates a 0.81% month-over-month decline in average hourly wages for Labor Economy workers, leading to an estimated $14 billion annualized reduction in consumer spending [3][10] - Personal job-security sentiment among Labor Economy workers has sharply decreased by 6.7 points in one month, exacerbating financial pressures [3][10] Economic Impact - The Labor Economy serves as a stabilizing force for GDP due to its spending being tied to essential needs, with pullbacks in this group affecting demand in sectors reliant on consistent consumer traffic [5][10] - As wages fluctuate, spending becomes more about necessity rather than confidence, particularly for households with limited savings [5][10] Credit Utilization - Over one-third (33.8%) of Labor Economy workers typically carry a revolving credit card balance, compared to less than 25% of the broader population [6][10] - Average outstanding credit card balances for these workers exceed 22% of their annual income, indicating that credit is primarily used to manage cash flow rather than for discretionary spending [7][10] Spending Patterns - Labor Economy workers predominantly spend on local, necessity-driven categories such as groceries, fuel, food service, and basic retail [8][9] - Credit is utilized to cover essential expenses and offset inflation in unavoidable categories like food and utilities, allowing households to maintain their routines [8][10] Economic Resilience - The reliance on credit is increasing not due to excess but due to economic fragility, highlighting the importance of the Labor Economy's financial resilience for stable consumer demand and broader economic growth [10]