Rising prices are leading to less consumer spending and the consumers taking the biggest hit are those at the lower end of the income scale.
Chief U.S. economist at JP Morgan Chase and Company in New York, Michael Feroli has lowered the first quarter growth forecast to 2.5 percent from 3.5 percent and the second quarter growth to 3.5 percent from 4 percent, as a result of the decline in consumer spending. Sustained higher energy cost is cited as a major factor.
One giant retailer, Wal-mart, that caters to lower-income consumers is already signaling slower stock growth. Since the start of the year, Wal-mart stock has dropped 2.5 percent, reports bloomberg.com.
According to Bloomberg, 82 percent of Wal-mart shoppers earn less than $75,000 annually. So, as businesses raise prices on account of rising commodity prices, Wal-mart shoppers and others cut back on the consumption of non-necessities, owing to less flexibility in terms of food and energy.
High unemployment rates and slowing wage growth are also forcing consumers to cut back on non-essentials and in many cases essentials.
Most economists have revised downward their growth forecast this year to 3 percent from to 3.2 percent, reports bloomberg.com. They also project that unemployment will average a high 8.8 percent, virtually unchanged from the 8.9 percent recorded in February 2011.
