Falling inflation and rising incomes in recent months have meant stronger finances for the majority of American households, according to a newly created measure of financial health unveiled Tuesday by Primerica.
But even six months of improvement have not yet pushed most people into a position where they are able to put away savings, according to the Primerica Household Budget Index.
“There is no extra money in middle-income households,” said Glenn Williams, chief executive officer of Duluth-based Primerica, which provides financial services in the United States and Canada. He added, however, “Clearly, things are moving in a positive direction.”
The company, which had $2.7 billion in revenue he past year, provides advice and guidance to middle-income families, which it defines as those with $30,000 to $130,000 in yearly income. That group represents about 56% of American households, according to Primerica.
Government data that measure inflation — mainly the Consumer Price Index — is broad, not accounting for the different burdens on households of different income. The Primerica Index, Williams said, is a comparison of the growth in income and the change in the costs for necessities like food, utilities, healthcare and gasoline.
While the index is new, it was calculated using the start of 2019 as its baseline.
When growth in income matches the increased expenses, the index is at 100%, he said. “But in 44 of the past 55 months, that has been negative.”
Only during the first year of the pandemic has the index been above 100% as many people went without travel and other expenses, peaking at 102.8% in late 2020, Williams said. “For savings, fear did some of the work for us.”
Then, with the economy rebounding, supply chains struggling and inflation rising, the index fell dramatically, hitting a low in the early summer of 2022.
It has been climbing since then.
Rising inflation then caused the index to plummet. In June 2022, it reached a low of 85.6% and then started climbing.
Last month, the index rose from 97% in June to 97.5%.
But the months in which inflation was eating away at incomes left many households in a hole, Williams said. “It’s not dramatic for any one month, but it had a cumulative effect.”
When earned income falls short of what’s needed, households dip into savings, look for cheaper alternatives or run up a tab on their credit cards. As a result, he said, “a lot of people are digging out of a hole.”
Primerica plans to update and release a new calculation each month, eventually further dividing the middle-income group into five, since the stresses on a family at the bottom are somewhat different than those at the top.
The index was created for Primerica by consulting economist Amy Crews Cutts, who said the calculations take a very different approach from the more commonly discussed government reports.
Economists who discuss the CPI data often talk about “core inflation,” discounting items like fuel and goods whose prices can jump or dive from month to month. In contrast, Cutts said she wanted a measure that was weighted with things that were volatile.
“What is going to blow up a household budget?” she said. “It’s not the car payment or rent payment, because they don’t change month to month. It’s going to be that eggs tripled in price or that gasoline prices soared.”