Moody's: Cost-of-Living Crisis Persists despite Improving Economic Indicators

Moody's cautioned that the cost-of-living crisis remains one of the defining economic and political challenges of the decade, arguing that headline economic improvements obscure the persistent financial strain facing millions of lower- and middle-income households.

In a new report, the credit ratings agency described the affordability crisis as a genuine structural issue rather than a temporary phenomenon or a product of political rhetoric. While broad economic indicators point to stronger household incomes, resilient labor markets, and rising asset values, Moody's said these gains have been distributed unevenly across society.

According to the report, inflation-adjusted average household income increased by approximately 42% between 1970 and 2024, while recording a further 24% gain from 2012 to 2024.

Moody's also noted a significant increase in the share of households earning more than $150,000 in real income over recent decades, alongside a decline in the proportion of households earning less than $50,000.

The agency challenged common perceptions about generational inequality, saying that Millennials have, on average, achieved income levels broadly comparable to those of Baby Boomers at similar stages of life.

The report further highlighted that labor market conditions remain close to historically strong employment levels despite slower hiring among recent graduates. Meanwhile, both equity markets and residential property prices have continued to reach record highs.

Despite these encouraging macroeconomic trends, Moody's stressed that the affordability crisis cannot be dismissed as a matter of perception.

"The continued prominence of affordability concerns among consumers reflects genuine financial pressures that are not fully captured by aggregate economic statistics," the report said.

Moody's argued that income and wealth gains have been concentrated disproportionately among higher-income groups, leaving many households behind. The lowest-income segment, representing roughly 40% of households, continues to grapple with sluggish wage growth, the lingering effects of inflation, and housing costs that have climbed to their highest levels in decades.

As a result, average measures of income and wealth fail to accurately reflect the economic reality experienced by a substantial share of the population.

The agency also warned that strong consumer spending should not be interpreted as evidence of broadly improving living standards.

Instead, Moody's said the economy increasingly reflects two distinct realities. Lower-income households continue to spend largely out of necessity despite shrinking financial flexibility, while wealthier consumers are able to sustain spending because of stronger balance sheets and accumulated assets.

This divergence, the report said, explains why affordability remains a dominant concern for consumers, features prominently in political debate, and continues to generate elevated online search activity even as several key macroeconomic indicators improve.

Moody's concluded that aggregate economic data can obscure underlying disparities in the distribution of income and wealth, underscoring the need for policymakers and analysts to assess economic conditions through a more granular lens that accounts for differences across income groups.