Dollar Stores Show Lower-Income Americans Are Tightening Their Belts

Summary

WSJ What’s News: Dollar Stores Show Lower-Income Americans Are Tightening Their Belts
Release Date: December 13, 2024
Host: Alex Osila, The Wall Street Journal

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Introduction

In this episode of WSJ What’s News, host Alex Osila explores the economic behaviors of lower-income Americans, particularly through the lens of dollar stores. The discussion highlights the financial strains faced by these households despite an overall resilient U.S. economy. Additionally, the episode covers significant business and political developments, providing listeners with a comprehensive overview of the factors currently influencing markets and everyday lives.

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US Imposes New Restrictions on China's Access to Advanced AI Chips

The episode opens with a briefing on the U.S. government's efforts to curb China's acquisition of advanced artificial intelligence (AI) chips. At [00:21], Osila states:

"The US is preparing new rules to limit China's access to advanced AI chips... the restrictions are an attempt to limit China's ability to access those chips and to close its backdoor access when China purchases chips in other nations that it can't obtain directly from the U.S."

These measures are part of the Biden administration's broader strategy to prevent China from gaining technological superiority. However, these new rules may spark tensions with allied nations unwilling to have their own purchasing autonomy undermined by U.S. policies. China's response has been swift, retaliating by restricting the export of minerals essential for chip production, thereby escalating the trade tensions between the two superpowers.

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Boeing’s Delayed Delivery of New Air Force One

A significant portion of the episode is dedicated to the delays surrounding Boeing's delivery of new presidential planes, a project initiated during Donald Trump's first term. Aviation reporter Andrew Tangle provides detailed insights at [03:31]:

"It's been a string of production problems and management slip-ups with these two very important aircraft... labor problems, trying to get enough workers who have these special security credentials... the program is so highly classified, because it's supposed to be a flying White House for the president... the planes just aren't finished."

Originally slated for delivery by the end of 2024, Boeing has yet to meet this deadline due to numerous supply chain issues, quality control problems, and labor shortages. Tangle further explains at [04:34]:

"When Boeing did this deal... the plan was to deliver the planes by the end of 2024. So this year, and they're nowhere near meeting that milestone."

The delays not only strain Boeing financially—resulting in billions of dollars in losses for shareholders—but also jeopardize the administration's plans to utilize these new aircraft, potentially preventing President-elect Donald Trump from flying on them if he secures a second term.

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Dollar Stores Reveal Financial Strain Among Lower-Income Households

The centerpiece of the episode examines how dollar stores serve as indicators of the financial health of lower-income Americans. Columnist Jinju Lee provides an in-depth analysis at [07:18]:

"Lower income families spend a higher proportion of their paychecks on bare necessities like rent, utilities, groceries. Inflation in those categories have been more severe and more persistent than discretionary purchases like clothes and furniture."

Lee highlights that while the broader U.S. economy shows signs of improvement—with easing inflation and decent wage growth—lower-income households are not reaping these benefits. Several factors contribute to their ongoing financial struggles:

1. Slowed Wage Growth: Since 2022, wage increases for the lowest-income workers have decelerated, falling behind those of higher-income households.

2. Reduced Government Assistance: Post-pandemic government support, such as stimulus checks and enhanced food stamp programs, has diminished, removing a crucial safety net.

3. Persistent Inflation: Inflation has disproportionately affected essential expenses. At [08:39], Lee notes:

   "Lower income families spend a higher proportion of their paychecks on bare necessities... inflation in those categories have been more severe and more persistent."

As a result, consumers frequenting dollar stores are altering their spending habits—holding off on non-essential purchases until the last minute and cutting back towards the end of the month when budgets are tight. This behavioral shift signifies deeper financial strain within this demographic.

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Broader Business Developments

Beyond the primary focus on dollar stores and lower-income consumers, the episode also touches on other significant business news:

1. Amazon Union Strikes:

   Amazon union members at two New York City warehouses have unanimously voted to authorize strikes. The Teamsters union has set a December 15 deadline for Amazon to negotiate a new contract addressing wages and working conditions. This move underscores the growing labor unrest within major tech and retail companies.

2. McKinsey’s Opioid Crisis Settlement:

   Consulting powerhouse McKinsey has issued an apology and agreed to a $650 million settlement, alongside entering a deferred prosecution agreement with the U.S. Justice Department. As Osila reports at [00:47]:

   "McKinsey also agreed to pay a $650 million settlement and enter into a deferred prosecution agreement with the U.S. justice Department... they've already paid nearly $1 billion to settle hundreds of civil lawsuits related to the opioid crisis."

   This settlement addresses McKinsey's role in Purdue Pharma's aggressive sales of OxyContin, marking a significant moment in the ongoing battle against the opioid epidemic.

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Market Impact of Changing Consumer Behavior

The episode links the discussed economic trends to their repercussions in the financial markets. Concerns over reduced spending by lower-income consumers have adversely affected consumer goods stocks. Osila explains:

"In U.S. markets, concerns about softer spending by lower income customers dragged down consumer goods stocks like Nike and Coca Cola, and they in turn dragged the Dow about 0.2% lower."

While the S&P 500 remained flat and the Nasdaq saw a slight uptick, the dip in consumer goods stocks reflects investor anxiety over the purchasing power of a significant segment of the population.

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Political News: Nancy Pelosi’s Hospitalization

In addition to economic and business news, the episode covers a noteworthy political incident. Former House Speaker Nancy Pelosi was hospitalized following a fall during an overseas trip. At [10:XX], Osila reports:

"Nancy Pelosi, who's 83, was traveling with a bipartisan congressional delegation in Luxembourg to mark the 80th anniversary of a World War II battle... she tripped and fell after a group photo... Pelosi could walk with help and was alert."

This incident sidelines Pelosi from participating in the remainder of the events, adding a human interest angle to the episode’s diverse coverage.

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Emerging Wellness Trend: Professional Back Scratchers

A lighter yet intriguing segment explores the rise of professional back scratchers—a niche wellness service gaining popularity. Reporter Joseph Pisani delves into this trend at [11:09]:

"They say they're not scratching itches, they're using their nails and they're gently rubbing it against the skin, going up and down the back... it's a way for customers to get relaxed and it's different than scratching an itch."

These services, often promoted via social media, charge upwards of $100 per hour. Pisani highlights success stories, such as a professional in Pasadena, California, who transitioned from a pattern-making job to earning six figures through offering back scratching services.

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Conclusion and Upcoming Highlights

Alex Osila wraps up the episode by previewing upcoming segments:

• Saturday's Markets Wrap-Up: A comprehensive review of the week's market movements.
• Sunday’s Deep Dive: An analysis of the youth vote shift towards Donald Trump in the presidential election and insights into Gen Z voters' perspectives on politics and governance.

Osila also credits the production team, ensuring listeners are informed about the collaborative effort behind the podcast's insightful reporting.

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Notable Quotes:

• Jinju Lee on Consumer Spending Habits:

  "Dollar stores have been saying that consumers are holding off on purchases until the last minute and they're spending less toward the end of the month when they've used up their budget." [07:18]

• Andrew Tangle on Boeing’s Production Issues:

  "They've had a host of supplier problems. They've had quality issues. They've had labor problems..." [03:31]

• Jinju Lee on Impact of Inflation:

  "Lower income families spend a higher proportion of their paychecks on bare necessities like rent, utilities, groceries. Inflation in those categories have been more severe and more persistent than discretionary purchases like clothes and furniture." [08:39]

• Joseph Pisani on Professional Back Scratchers:

  "They are using their nails and they're gently rubbing it against the skin, going up and down the back..." [11:09]

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This episode of WSJ What’s News offers a multifaceted look into the economic challenges faced by lower-income Americans, the ripple effects on businesses and markets, and a glimpse into emerging trends—all while keeping listeners informed about pivotal political events.

Transcript

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[Alex Osila]

Payment required equivalent to $15 per month new customers on first 3 month plan only taxes and fees extra special speed slower above 40 gigabytes on unlimited. See mintmobile.com for details. The US is preparing new rules to limit China's access to advanced AI chips. And $ stores offer a window into how low income households are faring. And right now, those consumers are showing signs of financial strain.

[Jinju Lee]

Dollar stores have been saying that consumers are holding off on purchases until the last minute and they're spending less toward the end of the month when they've used up their budget.

[Alex Osila]

Why Donald Trump may never get to fly in the new Air Force One that he negotiated FOR It's Friday, December 13th. I'm Alex Osila for the Wall Street Journal. This is the PM edition of what's the top headlines and business stories that move the world today. The US Is preparing rules that would restrict the sale of advanced artificial intelligence chips in certain parts of the world. People familiar with the matter say the restrictions are an attempt to limit China's ability to access those chips and to close its backdoo access when China purchases chips in other nations that it can't obtain directly from the U.S. but the new rules could cause conflict with those other nations who don't want Washington micromanaging their purchases. It's the latest in a series of moves from the Biden administration as it attempts to block Chinese access to the most advanced chips, as well as chip making, equipment and other technology. The latest round of curbs could come this month, weeks before President elect Donald Trump takes office. China has denounced the US Curbs on chip purchasing and retaliated by limiting the export of some minerals used in chip production. In business news, Amazon union members at two New York City warehouses have voted unanimously to authorize strikes. Teamsters, one of the largest unions in the US has given Amazon a December 15 deadline to negotiate a contract addressing wages and working conditions, the union said. Amazon wasn't immediately available for comment. And consulting giant McKinsey has apologized for its role in helping Purdue Pharma turbocharge its sales of OxyContin opioid painkiller. McKinsey also agreed to pay a $650 million settlement and enter into a deferred prosecution agreement with the U.S. justice Department. That agreement will resolve criminal and civil claims stemming from its opioid related work. McKinsey has already paid nearly $1 billion to settle hundreds of civil lawsuits related to the opioid crisis. During Donald Trump's first presidential term, he awarded a nearly $4 billion contract to Boeing to deliver two new presidential planes. Their first flights are currently slated for 2026. Now, we're exclusively reporting that an array of issues have caused further delays, which means the president elect likely won't get to fly on a new Air Force One during his second term either. Here to tell us more is Wall Street Journal aviation reporter Andrew Tangle. Andrew, tell me more about this delay from Boeing. What's been going on?

[Andrew Tangle]

It's been a string of production problems and management slip ups with these two very important aircraft. They've had a host of supplier problems. They've had quality issues. They've had labor problems, trying to get enough workers who have these special security credentials called a Yankee white clearance on top of their security clearance because this program is so highly classified, because it's supposed to be a flying White House for the president and just a huge, complicated project that has just not happened as quickly as Boeing and the Air Force originally envisioned. And it just dragged on and on and on. Problems have mounted. Boeing has eaten billions of dollars in losses for shareholders, and the planes just aren't finished.

[Alex Osila]

Okay, so given all these issues, what's the new timeline for when Boeing might deliver these new planes?

[Andrew Tangle]

When Boeing did this deal, after Trump personally negotiated it during his first term, the plan was to deliver the planes by the end of 2024. So this year, and they're nowhere near meeting that milestone. And the Air Force next year is supposed to work with Boeing on a new master schedule that will take into account the delays from all of these mounting problems and presumably have a realistic estimate for when these planes are going to be complete. But the long and short of it is, is that these new planes that Trump has been so fixated on will not be ready for him to fly on as president in his second term.

[Alex Osila]

Boeing and Air Force representatives declined to discuss the project's timeline when you reached out, and a spokeswoman for Trump's transition team didn't respond to a request for comment. What do these planes mean for Boeing's business and its reputation?

[Andrew Tangle]

For Boeing, it's a relatively small project in their portfolio, but its importance to the country is outsized. And its effect on Boeing's finances over the last few years has also been outsized. It's just been a big money pit and Boeing doesn't have any money at the moment to keep pouring in there. So it just adds to the strain, the worse the problems get. It also complicates the ability of the Commander in Chief of the United States to be able to get around.

[Alex Osila]

That was Wall Street Journal aviation reporter Andrew Tangle. Coming up, what can consumer behavior at dollar stores tell us about the state of low income households in the U.S. that's after the break.

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[Alex Osila]

By many metrics, the US economy seems to be doing okay. Inflation has eased, wage growth has been decent, and many Americans have more in savings than they did pre pandemic. But lower income consumers aren't feeling any of that. Dollar stores, a bellwether for that group's spending, started seeing signs of consumers belt tightening in recent months. Jin Ju Lee is a columnist for Hurt on the Street. So Jinju, what are the signs of consumers financial strain at dollar stores and other retailers?

[Jinju Lee]

So dollar stores have been saying that consumers are holding off on purchases until the last minute. For instance, they're not shopping in advance for occasions like Halloween. They're buying it closer to when they need it. And they're spending less toward the end of the month when they've used up their budget. And it's not just dollar stores. McDonald's. They said poor consumers are eating at home more and their five dollar meal has been very popular. Monroe, which is an auto repair service chain, said people are trading down to cheaper tires.

[Alex Osila]

This is interesting, especially because lower income households have actually fared pretty well in the years following the pandemic. Lower wage workers saw bigger pay increases and stimulus checks and food stamps help them accumulate savings. So what's changed here?

[Jinju Lee]

So wage growth for the lowest income Americans has actually slowed down a lot since 2022 and now it lags behind that of the richest households. And some of the post pandemic boost to government assistance like the food stamp program are no longer there. And the cumulative impact of inflation over the last few years are catching up to them.

[Alex Osila]

Inflation, though, is affecting everyone, right? So what makes it hit harder for lower income families?

[Jinju Lee]

Lower income families spend a higher proportion of their paychecks on bare necessities like rent, utilities, groceries. And inflation in those categories have been more severe and more persistent than discretionary purchases like clothes and furniture. So the Bureau of Labor Statistics, for example, assumes that about 71% of spending goes towards food, housing and medical care for the poorest Americans. For the richest households, that number is closer to 60.

[Alex Osila]

It sounds like these years of inflation have had this compounding effect for these lower income folks. What might help them start feeling better?

[Jinju Lee]

Hard to tell. We need to see inflation slow down more and or see wages catch up. And inflation actually picked up slightly in November, so that's not a great sign. In addition to that, food stamp benefits barely increased for fiscal year 2025. So that's another headwind.

[Alex Osila]

That was WSJ heard on the Street Columnist Jinju Lee. Thanks so much, Jinju.

[Jinju Lee]

Thank you.

[Alex Osila]

In U.S. markets, concerns about softer spending by lower income customers dragged down consumer goods stocks like Nike and Coca Cola, and they in turn dragged the Dow about 0.2% lower. The S&P 500 was flat and Nasdaq inched ahead 0.1%. Former House Speaker Nancy Pelosi was hospitalized after falling on an overseas trip. Her spokesman said that Pelosi, who's 83, was traveling with a bipartisan congressional delegation in Luxembourg to mark the 80th anniversary of a World War II battle. He added that Pelosi won't be able to attend the remainder of the events. A person familiar with the incident said she tripped and fell after a group photo with other lawmakers and officials and a separate person said Pelosi could walk with help and was alert. If you're looking for a wellness appointment as a way to relax, there's a massage or maybe a facial. Now, though, customers are seeking out professional back scratchers as a way to de stress. A small but growing field of scratchers are making a living off their nails, hoping there's a healthy market of people who will pay for what a spouse or a wooden spoon will do for free. Joseph Pisani is a reporter for the Wall Street Journal and is scratching the surface of this story. Joseph, what exactly are these back scratchers doing? Are they literally scratch an itch?

[Joseph Pisani]

They say they're not scratching itches, they're using their nails and they're gently rubbing it against the skin, going up and down the back down the arms up into the scalp. And in one case, she's putting the tip of her nails inside people's ears. They say it's a way for customers to get relaxed and it's different than scratching an itch.

[Alex Osila]

Okay, I'm curious about the economics here. How much does it cost to get your back scratched? And are the scratchers earning enough to actually make a living?

[Joseph Pisani]

Most of them are charging $100 or more an hour and they say they are making a living. And part of the growth is from social media. And one person I talked to in Pasadena, California, she quit her job as a pattern maker and she was making six figures. And now she said she's earning more than she made before. And part of it was because of social media.

[Alex Osila]

That was our reporter Joseph Pisani. And that's what's news for this week. Tomorrow you can look out for our weekly markets wrap up, what's News and Markets. Then on Sunday, we'll be looking at how the youth vote shifted in Donald Trump's favor in the presidential election and what Gen Z voters are thinking about the president elect, politics and the role of government in their lives. That's in what's NEWS Sunday. And we'll be back with our regular show on Monday morning. Today's show was produced by Anthony Bansi and Pierre Biename with supervising producer Michael Kosmidis. Michael Laval wrote our theme music. Aisha Al Muslim is our development producer. Scott Salloway and Chris Sinsley are our deputy editors. And Philana Patterson is the Wall Street Journal's head of news audio. I'm Alex Osila. Thanks for listening.