“We are going to need a bigger boat.”

That’s the line everyone remembers from Jaws: the moment of realizing the problem is much larger than expected. It perfectly captures a growing concern about American household finances today.

The U.S. economy continues to grow. Unemployment remains low. Inflation has cooled. Yet many households are still feeling the effects of years of eroded purchasing power.

That contradiction should worry us more than another quarter-point move by the Federal Reserve. When household finances deteriorate during an expansion — not during a recession — it suggests something more fragile is building beneath the surface. By the time that fragility shows up in unemployment or recession data, household balance sheets have often been deteriorating for years.

From January 2021 to June 2022, workers experienced a 5% decline in purchasing power as nominal wages rose only 7.3% while inflation jumped 12.3%. Real wages have recovered since May 2023 and continue to grow, but more than five years after inflation accelerated, workers remain down approximately 2.5% from January 2021 levels.

When household budgets tighten, families respond in predictable stages. First they save less. Then they borrow more. Eventually they begin missing payments. Today’s data show all three stages unfolding simultaneously.

The household credit data suggest that process is already underway.

The deterioration is spreading across all forms of consumer........

© The Daily Caller