Recent data paints a promising picture of the U.S. economy. Inflation rates have hit a 2 1/2 year low, and unemployment remains below 4% for an extended period. Additionally, the economy has defied predictions of an imminent recession. However, various polls and surveys reveal that most Americans continue to hold a bleak outlook on the economy.
This discrepancy has sparked confusion, frustration, and curiosity on social media platforms and in opinion pieces. Last month, the government reported that consumer prices remained stagnant from September to October, indicating a steady decline in inflation since last year’s peak.
Another report showed that although Americans reduced their retail spending in October compared to the previous month, their overall expenditure is still driving economic growth.
Nevertheless, a poll conducted by The Associated Press-NORC Center for Public Affairs Research revealed that about 75% of respondents perceive the economy as poor, with 66% stating that their expenses have risen while only 25% reported an increase in income.
These findings pose a significant political challenge for President Joe Biden as he prepares for his re-election campaign, as most Americans disapprove of his handling of the economy.
Economists attribute the negative sentiment to the lasting financial and psychological impact of the most severe inflationary period in four decades. Despite the steady decline in inflation over the past year, the prices of many goods and services remain significantly higher than they were three years ago. Slowing inflation rates are insufficient to appease most Americans who desire a return to pre-pandemic price levels.
Lisa Cook, a member of the Federal Reserve’s Board of Governors, underscored this sentiment during a recent speech at Duke University. She noted that Americans seek not only disinflation, the slowing down of price increases but also deflation, a reduction in prices to pre-pandemic levels. Cook stated, “I hear that from my family.”
This sentiment is particularly true for everyday consumer staples such as bread, beef, groceries, rent, and utilities. Regularly encountering these higher prices serves as a constant reminder of the significant price hikes that have occurred.
Economists argue that the goal should be for wages to rise faster than prices, ensuring that consumers experience real gains rather than relying on deflation.
Determining how inflation-adjusted incomes have been impacted since the pandemic is a complex task due to the diverse experiences of approximately 160 million Americans. According to calculations by Wendy Edelberg, a senior fellow at the Brookings Institution, median weekly earnings, when adjusted for inflation, have only risen at an annual rate of 0.2% from Q4 2019 to Q2 2021. This meager increase has left many Americans feeling financially stagnant.
One such individual is Katherine Charles, a 40-year-old single mother from Tampa, Florida. Despite the slowdown in inflation, Charles continues to struggle to make ends meet. Her rent increased by 15% in May, prompting her to turn off the air conditioning during the sweltering summer months to reduce her electricity bill.
She has also had to cut back on groceries, even though her 16-year-old son and 10-year-old daughter have ravenous appetites.
Charles, a call center representative for a company handling customer service for healthcare plans, received a raise two years ago, bringing her wage to $18.21 an hour. However, she cannot recall the extent of the increase.
Charles recently participated in a one-day strike against her employer, advocating for higher wages and more affordable health insurance. Her children are currently on Medicaid due to the high cost of Maximus’s health insurance.
Eileen Cassidy Rivera, a spokesperson for Maximus, claimed that three-quarters of the 40,000 employees surveyed considered the company a favorable workplace. She highlighted the company’s efforts to improve compensation, decrease healthcare expenses, and enhance the work environment.
Nevertheless, rising prices have contributed to an increase in strikes and other labor activism this year, with unions successfully securing significant pay raises for sectors such as autoworkers, Teamsters, and airline pilots.
Multiple factors contribute to Americans’ dissatisfaction with the economy, including political partisanship. According to the University of Michigan’s monthly survey of consumer sentiment, Republicans are more likely to perceive the economy as poor due to President Biden’s occupancy of the White House.
Karen Dynan, a Harvard economist who served under both the George W. Bush and Obama administrations, noted that economic sentiment often swings dramatically after a new president takes office, with opposing party voters adopting a more pessimistic view.
Nonetheless, many Americans, like Katherine Charles, continue to bear the brunt of inflationary effects. The average national price of a gallon of milk reached $3.93 in October, a 23% increase since February 2020. Ground beef prices have risen 33%, with an average pound costing $5.35. Despite a significant year-on-year decline, average gas prices remain 53% higher at $3.78 per gallon.
These substantial price hikes surpass the overall 19% rise in general prices during the same period. While Americans remain confident enough to sustain healthy spending habits, the specific price increases for frequently purchased items contribute to their discontent.
Wendy Edelberg argues that this dissatisfaction stems from price increases of essential goods that have heightened Americans’ perception of the economy, even though their overall purchasing power has fared well.
However, national data fails to encapsulate the experiences of ordinary Americans who have not witnessed commensurate wage growth with rising prices.
Brad Hershbein, a senior economist at the Upjohn Institute, highlights that lower-income Americans have experienced the highest wage gains since the pandemic. Intense competition for frontline workers in industries like restaurants, hotels, retail, and entertainment venues has necessitated significant pay hikes.
Unfortunately, poorer individuals face a higher inflation rate as a result of allocating more of their income toward volatile expenses like food, gas, and rent, which have experienced substantial price surges.
Surveys conducted by the Census Bureau indicate that nearly half of Americans report being “very stressed” by inflation, a figure that remains largely unchanged from the previous year despite a decline in inflation rates. Research demonstrates that people despise inflation more intensely than its actual economic impact would suggest.
Even when their salaries keep pace with rising prices, individuals tend to dislike inflation on a personal level due to possible time lags between wage increases and price hikes.
Brad Hershbein emphasizes that people fixate on the elevated costs of prominent goods such as gas, food, groceries, and rent, which may not be increasing as rapidly as before but remain noticeably high. If everyone were experiencing job losses, economic concerns would likely shift toward that issue.