The divide between lower- and upper-class Americans is deepening—thanks to what JPMorgan calls a “selective recession.”

In a recent CNBC interview, JPMorgan analyst Matthew Boss said that lower-income Americans struggle to make ends meet while upper-class Americans continue to splurge.

“You have the consumer at the high end who is being more choiceful,” Boss said. “The low end, I do think, is a melting ice cube… What I’m calling it now is a selective recession.”

Boss added that 70% of low-income consumers are feeling the pinch despite remarkable wage growth and cooling inflation.

“You focus on that low- to middle-income consumer, they’re under pressure, and the pressure is really that the inflation continues to last,” Boss said.

“Each month that we move forward, it doesn’t matter that inflation is not worsening; it’s just an incremental toll on that savings that they built.”

Covid-era savings are gone

Many Americans have been able to stave off rising inflation after Covid—thanks to excess savings from lockdowns.

“Excess savings were built up over a period of 18 months, from the onset of the pandemic recession in March 2020 until August 2021,” wrote Hamza Abdelrahman and Luiz Edgard Oliveira, two top economists at the Federal Reserve Bank of San Francisco.

“The rapid accumulation was largely due to pandemic-related financial support to U.S. households and a steep decline in consumer spending as a result of health-related social distancing and business closures.”

However, sticky inflation has forced lower-income people to tap into their savings accounts, and now many are left with less than they had before the pandemic.

A stronger-than-expected job market helped cushion the blow, but Fed research suggests Americans are running dangerously low on cash.

“The latest estimates of overall pandemic excess savings remaining in the U.S. economy have turned negative, suggesting that American households fully spent their pandemic-era savings as of March 2024,” Abdelrahman and Oliveria wrote.

“However, consumer spending has remained strong in recent months, which raises an important question: What’s next?”

What comes next?

Spending data and surveys indicate that middle-class Americans are likely to continue to feel the pinch of inflation.

Sixty-seven percent of middle-class households say they’re feeling the impacts of inflation – and say their income is falling behind the rising cost of living.

Primerica’s survey results show that 27% of respondents plan to contribute less money to their retirement savings this year to help make ends meet.

Meanwhile, another 60% don’t believe they’re currently saving enough to retire comfortably.

Despite the gloomy outlook, Fed researchers believe that Americans aren't likely to cut down on spending —even if it means dipping into savings or taking on debt.

“The depletion of these excess savings is unlikely to result in American households sharply cutting their spending..." Abdelrahman and Oliveria wrote.

That's as long as they have access to, "employment or wages gains, other forms of wealth – including non-pandemic-related savings – and higher debt.”