Auto parts and dollar store execs warn that low-income Americans are stretched thin and running on borrowed time

• Retail sales held up surprisingly well over the summer in spite of concerns about a sharper slowdown.
• The picture is more complicated among lower-income shoppers , auto parts and dollar store execs say.
• These households could start to see signs of relief if the Fed moves to cut interest rates next week.

As the summer comes to a close, it seems that most of the worst-case economic scenarios have been avoided.

The relief was apparent during the most recent earnings cycle as retailers reported sales that held up surprisingly well in spite of concerns about a sharper slowdown.

Share prices for Walmart and Costco continue to reach all-time highs as inflation-weary consumers flock to value-oriented retailers, and investors largely forgave home improvement suppliers for soft sales during the quarter.

Given rising home values, strong employment figures, a booming stock market, and cooling inflation, US household finances appear to be in a remarkably good spot .

But Americans are not a monolith, as Jefferies consumer strategist Carey Kaufman pointed out in a note to clients Tuesday.

"The U.S. consumer is three consumers," he wrote: the top fifth of the income scale, the bottom fifth, and the middle three-fifths.

Heading into the autumn, a considerable number of those in the bottom quintile appear to be running on borrowed time.

Telling signs from spending at auto parts and dollar stores

In contrast to the rosy outlook from stores that serve relatively large (and growing) shares of middle- and upper-income customers, auto parts and dollar store retailers are telling a more complicated story among their core customers who have lower household incomes.

"When times are good, our core customer normally works her 30- to 40-hour a week job, but also has a secondary job that she normally works 15 to 25 hours in. What she told us in Q2 was that is going away or has gone away," Dollar General CEO Ted Vasos said earlier this month at the Goldman Sachs Global Retailing Conference.

Vasos said that reduction in earnings, coupled with higher prices from years of inflation, has put increased pressure on lower-income households . If things continue according to historical trends, those concerns begin to get more serious for middle and upper-income segments as well.

"When things start to move south in the economy, our core customer feels it first," Vasos said. "We usually see it before most retailers start to feel it."

Dollar Tree, which owns Family Dollar, reported similar consumer headwinds during its quarterly earnings this month.

Auto parts stores are another retail category that is especially tuned in to what's happening at the lower ends of the economic scale.

Much of their consumer-facing business is driven by helping people keep their cars and trucks running smoothly, Mizuho analyst David Bellinger told Business Insider.

"That's the lower end consumer who works on their car out of economic necessity," he said. "So maybe if they don't have to make a fix, they could delay a few months. That's kind of what's happening now."

Advance Auto Parts CFO Ryan Grimsland said during the company's earnings call last month that DIY customers are deferring "maintenance that you would typically want to see," like skipping an oil change or ignoring a check-engine light.

That can help extend the household budget for a time, but as Genuine Parts CEO Will Stengel put it earlier this month, "there's only so long you can defer an issue."

And repairs aren't the only auto-related expense seeing cut-backs. Ally Financial this week reported worse than expected loan performance in July and August.

"Our borrower is struggling with high inflation and cost of living, and now more recently, a weakening employment picture," Ally CFO Russell Hutchinson said , according to Reuters.

One thing that deferred maintenance and missed payments have in common is they are both problems that get more expensive with time. Nobody wants to be stranded on the side of the road or hounded by collections agents, but more people are finding themselves hoping to make it one day or week at a time.

Indeed, as Dollar General's Vasos observed, paychecks aren't going as far as they once did.

"What we noticed was an even tighter core consumer at the very last week of each of the months in Q2," he said. "While that's always a tighter week of the month for our core consumer, it was by far the weakest."

The expected interest rate cut from the Federal Reserve next week won't solve these difficulties overnight, but it could signal that improvement is in sight.

Interest rate effects take a while to work through the economy, Bellinger noted, as big purchases are financed, working hours are scheduled, and business activity ticks back up.

Still, with any luck, the creeping sense of economic anxiety might begin to subside, not just for the middle class, but for the households that have borne the real brunt of America's war on inflation.