Nicole:
It’s a right-ish spot. Is that where we are, Dave? No. News is good news. We’re reviewing the economy in the same way as we write Yelp reviews now.

Dave:
Hey friends, it’s Dave. Welcome to On the Market. Today we’re going to be talking about what’s going on with the average American consumer’s wallet right now and what it tells us about America’s economic present and the future. And to help us with this conversation, we’re bringing on a special guest, Nicole Lapin, who’s a financial expert and New York Times bestselling author. She’s got this incredible background in journalism as an anchor on a bunch of major networks like C-N-B-C-C-N-N and Bloomberg. She’s appeared as a correspondent on Morning Joe and the Today Show, and she has a great podcast called Money Rehab that you can check out. And also she’s just really good at getting to the heart of things and sort of distilling from all of the data and information that we are all bombarded with every single day. And just narrowing down to the story behind the story, in my conversation with Nicole, we’re actually going to be referencing and sort of using the framework of this Wall Street Journal article about the state of the American wallet.
We actually mentioned this a couple of weeks ago on the headline show. That was a very popular show. And so we decided to just dig deeper into the details of this to help you all understand what’s going on with the American consumer. And I think as a real estate investor or as a real estate service provider and agent, it is really helpful to know what your clients or perhaps your tenants are going through or you might yourself might be going through to help make sense of the broader picture and help you make informed investing and financial decisions. So with that, let’s bring on Nicole. Nicole, welcome to On the Market. Thanks for being here.

Nicole:
Thanks so much for having me.

Dave:
I’m excited to have you here. We’ve wanted to have you on the show for a long time and I’m eager to have you here talking about the state of the American wallet. You seem like the perfect person to talk with us about consumer sentiment, personal finance, debt, all of the above. So can we just jump right in?

Nicole:
Let’s do it.

Dave:
All right. So how would you describe the state of the American consumer right now when you just look at the mainstream media, it seems it feels confusing, at least to me

Nicole:
It is confusing. I think we have this thing called vibe session going on. Have you heard this? So it’s not a recession, but it feels that way. So we have this tale of two data stories out there. So we have the actual numbers of how people are feeling, consumer sentiment and all of that, which drives a lot of economic decisions. And then we have the state of the economy with the stock market, which is rocking and other economic indicators that are quite good. So it’s been interesting to see this conflict between what the numbers are saying and what people are feeling because the numbers do look good, stocks have been up, employment has been low, but no one seems to be happy.

Dave:
Yeah, that is the general vibe, like you said that I’ve been getting is that people seem super pessimistic, but then you see these prints of GDP and the labor market and all these things that look so good. So what is your approach to making sense of this? How do you even approach this question?

Nicole:
Well, I think consumer sentiment has inched down, so that’s jargony terminology for how people are feeling about the economy. Sentiment though is stronger than it was a year ago, but consumers are still feeling frustrated with high prices. So I think we have to give credence to that because consumer purchasing runs so much of our economy and it’s true things are more expensive and people have a right to feel frustrated about it. But I think we need to also have realistic expectations when inflation goes down. It doesn’t necessarily mean that it goes to zero, right? For that to happen, we would need deflation, and that’s pretty rare. So when people are saying inflation is going down, we have this soft landing, we’re in the 2% range, it’s still very fair for people to say. But yeah, rent is high, groceries are still high, they’re not back to how they used to be. So while people have rightly been frustrated with the economy over the last few years, they haven’t dramatically changed their spending habits. So while there was a drop and then a spike during 2020, in the last few years despite these recession vibes, there hasn’t been anything like there was in 2008. So while we’re feeling that way, it’s not reflected in the numbers, which is why it can get really confusing.

Dave:
It seems like it’s just this kind of situation where even though it inflation has come down and spending power is doing better, at least real wages do I think are up right now. But it takes a while at least I still feel sort of sticker shock when I walk into anywhere, a coffee shop, a grocery store. It’s still kind of hard to wrap your head around it, and at least for me, it feels like it’s still going to be a little while till I could accept the new prices and the new decreased spending power reality that we’re all basically living in.

Nicole:
Well, it’s really interesting, Dave, as you dig into these numbers, I wanted to double click on where the disconnect was. And as a journalist, I’m always following the money trail. I like to pay close attention to the difference between how men and women are feeling about consumer sentiment. So that’s actually changed over time. So you might be feeling worse than you have in recent years or even the last decade, but women haven’t. So historically, women have been Debbie Downers. In the 1980s, women have felt 12% worse about the economy than men. Throughout the two thousands, women continue to feel 10% more negative about the economy than men. It’s only in the last few years that this gap has actually closed down to 5% with women still feeling worse about the economy compared to men, but not that dramatically. So this tells us that women have been upset about for the last few decades, limited opportunities, lousy work-life balance. These things are starting to also become an area of concern for men, and men are feeling more frustrated than they have been.

Dave:
So it’s not that unfortunately, it’s not that things have actually gotten better for women, it’s just that it’s gotten worse for men and it’s bad for everyone. That’s right. Oh, wonderful. What a great reality we’re living in. Alright, so things are worse for everyone, but what are the numbers behind the vibe session? What does this look like for the average American in terms of wages or debt? We do have to take a short break, but we’ll be right back with the coal lapin. Hey friends, welcome back to the show. Let’s jump back in. Well, let’s dig into some of this because again, we see these sort of big trends in the market or in the economy where things are pretty decent. But let’s break it down on what’s actually happening in the individual consumer level. So can you tell us a little bit about wage growth? Because in theory there’s always some level of inflation, but as long as wages are going up, hopefully spending power is increasing. Are we seeing that right now?

Nicole:
I mean wages, weekly wages are up 23% since 2019. Even adjusting for inflation, wages grew the most for the bottom 25% of earners, which is awesome. But I was looking at a house in Cincinnati for a recent story that we were doing, and this is your world, so I’m sure you’re not surprised. A three bedroom, two bath house was 215 grand. Sounds kind of reasonable in this economy, but the home actually sold for $60,000 in 2022 and $50,000 in 2018. So if you grew up in that neighborhood and you wanted to stay and raise your kids there, that’s a huge jump and potentially not even a 100% wage increase is going to get you into that home now. So while it’s gone up, it hasn’t gone up enough.

Dave:
And unfortunately that just feels like the reality what the housing market, because when you look at affordability, it’s this, we talk about this a lot on the show, this sort of three legged stool where you have home prices, you have mortgage rates, and you have wage growth. And even though wage growth is going up, it’s definitely the slowest. And I think probably the least meaningful way to try and restore affordability, at least in the housing market because like you said, prices have gone up so much, mortgage rates have gone up so much seeing even two or 3% real wage growth. And when I say real everyone, I just mean inflation adjusted wage growth. That’s not going to really chip away at prices that have literally tripled over the last couple of years

Nicole:
For sure. And the growth has been unequal up and down the hierarchy as I’m sure you’ve seen. So since 1978, worker pay has risen about 16%, but CEO pay has arisen about 1200%. So that’s a big problem. I mean CEOs are not doing a thousand percent more work than they were in 1978. So I think a little bit more parody between those two numbers would be great for all of us.

Dave:
Well, that sort of explains at least one of the reasons for this vibe session or the disconnect because the economy can be growing total. Like GDP, the gross domestic product is a measure of the size of the pie, but it doesn’t really say about who’s getting what slice of the pie. And so perhaps the reason there’s this disconnect is that a bigger slice of the pie, at least in corporate America, is going to CEOs and the average worker is not actually enjoying the benefits of the pie getting bigger.

Nicole:
They’re also on the front lines of dealing with what inflation ramifications are on a day-to-day basis. I mean, everything’s more expensive. People have to spend more of their paycheck just to get by. They have to dip into savings more frequently when things go wrong. So we’ve seen all this stuff you need every single day. Transportation, food, housing go up the most since 2019. Stuff you need every day just to get through the day going up. That much is inconvenient to say the least.

Dave:
And although inflation sucks for pretty much everyone, it’s definitely the worst for those in the lower income brackets because for those folks at the higher end of the income bracket, your spending power is declining, but that’s eating into your discretionary income. And so that stinks, but it’s not as bad as when you’re eating into your savings or you just have to cut back somewhere else in your life. You literally just can’t make it all work. So this actually, Nicole brings me to another question, which is if people are struggling to make ends meet, whether from inflation or the softening in the labor market, it seems that this is starting to show up in other parts of the economy. Just as an example, I assume you’ve seen that credit card debt is at an all time high with over a trillion dollars in debt right now,

Nicole:
And it’s also climbed in interest rate from 17% to 23% since 2019.

Dave:
Oh, yikes. I didn’t even realize that. So yeah, so not only is the principal debt higher, but that’s more expensive. So I’ve actually started to look into this and as real estate investors, I think most of us listening to this are a little bit more comfortable with the concept of debt because most of us use debt for leverage and it’s actually beneficial to our investments, but to me at least, I don’t see any feasible way that credit card debt going up is a positive thing. What do you make of this increase?

Nicole:
I mean, you have a much tougher stomach for debt than I do. I think all real estate investors definitely do, but credit card debt is the nastiest kind of debt. It’s snowballs out of control the quickest. I used to be in credit card debt, so I know this all too well. It took me a couple of years to get out of credit card debt. And yeah, I think that there’s generally good debt, good debt and bad debt. But just like good fat and bad fat, you don’t want to gorge on good fat either. So credit card debt is definitely bad debt. Good debt would be student debt, business debt, investing debt, something that you’re doing to increase your assets, not your liabilities, but I think it’s universally known that that’s not what credit cards do for you. Interestingly, I think medical debt has also increased and for the good kind of debt. Dave, what’s interesting is that this is a little bit mixed. Students do seem to be graduating with slightly less debt adjusted for inflation, but that doesn’t erase the debt of earlier classes and slightly meaning 37 grand instead of 40 grand.

Dave:
Honestly, I’ll take it. I mean, all the news about debt, all the news about student debt, it’s been so bad for so long. At some point if things are going to get better, it needs to plateau and start moving in the other direction. So hopefully that’s a little bit better. But I guess when you look at this holistically, I’m curious your opinion because just total amount of consumer debt seems to be increasing more and more and people have very different beliefs about debt. And I’m curious just what’s yours? Does this seem like it’s a precursor of some crisis that might be brewing or is this just more of the same?

Nicole:
I think it’s a shift in how people think and talk about debt. We’ve seen this over the last five years, right? I mean a conversation about debt wouldn’t be complete unless you talk about interest rates. For a long time, interest rates were artificially low that made it easy to borrow money. It was free money. That’s no longer the case. And this arbitrage idea has gone down. So people borrowing cheaply, if I’m borrowing at 1% and I’m making 5% in an investment, that arbitrage of net 4% was awesome, but that’s no longer the case. It’s not free to borrow money as we know. And so that’s not only affecting consumers, but also companies that are raising money or big companies, Uber, Airbnb, Amazon losing money for years, nobody really had to worry about it, but those days are over. So I think that trickles down as well.

Dave:
Yeah, I think that’s a super important thing to remember for everyone listening is this idea that arbitrage. And we also often think about it in terms of the housing market, that you could get a mortgage at 2% or 3% for a brief period of time and then you could go and use that to buy an asset that cash flows at 6% or 7%. But I think that’s true. That was true all across the entire economy. People were borrowing money at two or 3% putting into the stock market or investing in businesses. And so having debt now has just gotten a lot more expensive, especially because outside of the housing market, most debt is variable rate for the housing market as this privileged position where you’re able to lock in a fixed rate for 30 years that doesn’t exist in most other countries or in other parts of the economy. So seeing all this debt that now be adjusting to a higher variable rate does concern me a little bit.

Nicole:
And we’re also, you’ll forget more than I’ll know about this, but there are serious impacts to people moving because they’re moving less. They don’t want to give up their low interest rate. Everybody’s feeling locked in, they’re unable to get out. Weighs also on how we feel about the future. And then we have this election that’s coming up and there’s always uncertainty around elections. So I hope we can get to a better place where we all feel a little bit more optimistic about the future and that our sentiment actually reflects some of the good bright spots of the economy on the stock market.

Dave:
Well, I have one very nerdy bright spot that I’ll share with you guys do and everyone. So I was curious about this because debt is just, I find it just kind of interesting and concerning how much debt there is in consumer debt, credit card debt is going up so much. And I was also just thinking about how much money has been printed over the last couple of years. And so I was figuring out, I basically calculated the percentage of credit card debt as a fraction of the total amount of money in the US economy. And it’s basically unchanged actually. And I know that sounds nerdy, but basically because there is so much inflation, the value of that debt, the value of that $1 trillion is actually lower, right? The inflation is basically the devaluation of the dollar. And so even though that headline number is actually quite scary, the percentage of total money that is in consumer debt really has remained unchanged. I don’t think that’s a good thing, but it hasn’t really gotten all that much worse in the last couple of years, even though those numbers do look a little bit scary.

Nicole:
So it’s a bright ish spot.

Dave:
Yeah, it’s not terrible. And actually another thing is that consumer debt as a percentage of disposable income is basically unchanged as well. So even though the debt total is higher, people’s incomes are higher. And so relative to their income, it’s basically the same.

Nicole:
Is that where we are, Dave? Like no news is good news.

Dave:
I’m trying to find something to put into this episode.

Nicole:
You’re digging deep. No, no, but the thing is that we should feel better. Inflation expectations have eased. Business expectations are up. The dow is up. I think we’ve had a stock market that has been on the strongest 15 year run in history, so there’s a lot to be excited about. And so consumers might still be holding their breath until after the election, so that could be a part of it, but there are a lot of bright spots.

Dave:
Okay, time for one last quick break, but stick around Nicole, share some actual bright spots on the other side. Hey investors, welcome back to On the Market. Are there parts of the economy that give you some hope on a personal finance level? Because obviously seeing GDP is great, I love seeing that as well, but I think for individual Americans, like the people that we’re talking about here, it’s kind of hard to say, oh, I’m so excited that GDP is good when I’m still struggling. Are there things that you can point to that you think might be helpful or do you have tips to help the average American and sort of get through this challenging time?

Nicole:
Well, I think inflation, take a look at the inflation rate. It might not feel that way, but we’re at 2.4% for the last 12 months. We know where we were. We peaked at 7% in 20 21, 6 0.4%, 20 22, 3 0.4% in 2023. We are achieving that Softish landing. But according to a lot of the consumer sentiment surveys out there, which do drive the economy, people are frustrated. And I feel like that’s a bumpy, turbulent landing and it actually is the soft landing that we were holding our breath for.

Dave:
Yeah, I am pretty surprised. Were you expecting this is where we would be two and a half years into the rate tightening cycle?

Nicole:
Yeah. So let’s get nerdy here and talk about Daniel Kahneman. You know this guy, he is Nobel Prize winning economist. He found that a lot of our decisions about life and money are made instinctively, not logically. So we love to think that we’re rational folks acting really sensibly and logically when we get scared or mad or logic goes out the window, our fight or flight instincts kick in and we act from our hind brain. He found that we care about losing a hundred bucks more than we care about winning a hundred bucks. We have this bias toward remembering and focusing on negative experiences. I mean, think about if you’re at a restaurant, if you have a good time, you tell one person if you had a bad time, you tell everyone we’re reviewing the economy in the same way as we write Yelp reviews now.

Dave:
Yeah, that’s so true. And the negative news also just spreads really quickly. There’s all that data that shows that on Twitter X, whatever negative news spreads seven times faster than positive news or something like that. But since you brought it up, and I do love data Kaman, highly recommend the book Thinking Fast and Slow. If anyone has not read that, it’s talking all about, it’s called Prospect Theory, just like the idea that and how people take risks and how your brain tricks you into making irrational decisions about risk if you are going to be an investor. Super great book to read. It’s super easy to read too. I found it really interesting.

Nicole:
Love this nerdy session.

Dave:
Yeah, I mean, you’re a welcome company here. We have a few different podcasts here on BiggerPockets Network. This one is for the nerds. I think we’re all pretty happy just digging into the data.

Nicole:
Love it my people.

Dave:
So I’m curious, we do have this election coming up. I’m not going to ask you to wade into politics, but I am curious where you think the economy might be heading and whether there’s hope for personal finance to improve in the next couple of years. You’ve cited that inflation’s coming down. Do you think there’s good investment opportunities or anything else our audience should be thinking about going into next year?

Nicole:
I look at all the numbers and the stories coming out. It’s a bit of a fire hose of information. I think post pandemic financial sentiment and the climate has taught us not to focus on a single number. So for years we saw that the Dow and the s and p were doing great and we act like it was this heat check for the economy or people’s happiness, and it’s clearly not. So I think that after the election we’re going to have more clarity about how we move forward, not only for the rest of the year, but beyond.

Dave:
Alright, well Nicole, thank you so much for joining us. This has been a lot of fun. Thanks for sharing all this information and your takes on the state of the American Wallet with us.

Nicole:
Thanks Dave. Thanks for having me.

Dave:
Alright, and thank you all so much for listening to this episode of On The Market. If you like this episode, make sure to leave us a review or share it with a friend who might be experiencing the vibe session right now for BiggerPockets. I’m Dave Meyer. We’ll see you all next time. On The Market was created by me, Dave Meyer and Kailyn Bennett. The show is produced by Kailyn Bennett, with editing by Exodus Media. Copywriting is by Calico content and we want to extend a big thank you to everyone at BiggerPockets for making this show possible.