Wall Street is booming, but Americans are pulling back on spending amid inflation pain

Even as the US stock market continues to touch record highs, a majority of Americans are becoming more cautious with their spending due to rising inflation, expensive fuel, and slowing real income growth.

According to a new survey released by the Conference Board, nearly two out of three Americans are cutting back on purchases as inflationary pressures intensify across the economy. The consumer confidence index slipped to 93.1 in May, marking its first decline after three straight months of gains.

The findings highlight a widening disconnect between Wall Street and Main Street. While wealthier Americans continue to benefit from booming equity markets and rising asset prices, lower and middle-income households are struggling with elevated costs of living.

Consumer confidence increased among households earning over $100,000 annually but declined for most other income groups, reinforcing concerns over a “K-shaped” economy where economic gains are unevenly distributed.

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The survey comes at a time when inflation in the US has climbed to 3.8 per cent, the highest level in three years and well above the Federal Reserve’s 2 per cent target. Gasoline prices have surged sharply following the Iran conflict, with the national average hovering around $4.50 per gallon for most of May, compared to under $3 before the war began.

Americans are also facing higher grocery bills, rising shipping costs, and soaring beef prices linked to drought-related supply shortages. As a result, inflation-adjusted wages declined in April for the first time in three years, reducing household purchasing power.

The Conference Board survey found that most consumers are delaying expensive purchases and cutting spending on discretionary items such as clothes, shoes, hobbies, toys, and entertainment.

Signs of caution are also emerging in broader economic data. Retail sales, adjusted for inflation, declined in April, while the University of Michigan’s consumer sentiment index dropped to a record low of 44.8 in May.

Concerns about the labour market are also beginning to rise. The percentage of Americans who believe jobs are “plentiful” fell to its lowest level in three years, reflecting what economists describe as a “low-hire, low-fire” economy where companies are reluctant to hire aggressively despite avoiding mass layoffs.

Economists warn that persistent inflation and weak consumer sentiment could create political challenges for President Donald Trump and Republicans ahead of the upcoming midterm elections.