Inflation has reached its peak lowest point in 2 and a half years. The unemployment rate has remained below 4% for the longest period since the 1960s. And the American economy has repeatedly defied predictions of a coming recession. Yet, according to a series of polls and surveys, most Americans have a gloomy view of the economy.
This disparity has sparked confusion, exasperation and curiosity on social media and in opinion columns.
Last week, the government announced that consumer prices didn’t get up at all from September to October, the latest sign of a steady slowdown in inflation from last year’s peaks. A separate report showed that even though Americans slowed down their retail purchases in October, compared to the strong pace of the previous month, they are still spending enough to stimulate economic growth.
Anyway, according to a survey last month About three-quarters of those surveyed described the economy as poor, according to the Associated Press-NORC Center for Public Affairs Research. Two-thirds said their spending had increased. Only a quarter said their income had increased.
This disconnect poses a political challenge for President Joe Biden as he prepares for his re-election campaign. Polls consistently show that most Americans disapprove Biden’s management of the economy.
Many factors are behind this lag, but economists are increasingly pointing to one in particular: the lingering financial and psychological effects of the worst surge in inflation in four decades. Despite the steady slowdown in inflation over the past year, many goods and services remain much more expensive than just three years ago. Inflation – the rate at which costs rise – is slowing. But most prices are high and continue to rise.
Lisa Cook, a member of the Federal Reserve Board of Governors, captured this dynamic in recent remarks at Duke University.
“Most Americans,” Cook said, “are not just looking for disinflation,” a slowdown in price increases. “They are looking for deflation. They want these prices to return to where they were before the pandemic. …I hear that from my family.
This is especially true for some of the goods and services Americans pay for most frequently: bread, beef and other groceries, apartment rent and utilities. Every week or month, consumers are reminded how much these prices have increased.
Deflation – a general decline in prices – generally makes people and businesses reluctant to spend and is therefore undesirable. Instead, economists say, the goal is for wages to rise faster than prices so that consumers remain winners.
How inflation-adjusted income has changed since the pandemic is a complex issue, because it is difficult with a single indicator to capture the experience of about 160 million Americans.
Adjusted for inflation, the median weekly wage – those in the middle of the income distribution – rose just 0.2% annually between the last three months of 2019 and the second quarter of this year. according to the calculations by Wendy Edelberg, senior fellow at the Brookings Institution. This meager gain left many Americans feeling like they had made little financial progress.
For Katherine Charles, a 40-year-old single mother living in Tampa, Florida, slowing inflation hasn’t made it easier to make ends meet. His rent jumped 15% in May. During the summer, to reduce his electric bill, Charles kept the air conditioning off during the day despite Tampa’s scorching heat.
She felt the need to cut back on her shopping, even though, she says, her 16-year-old son and 10-year-old daughter “are at the age where they eat everything in front of them.”
“My son loves red meat,” Charles said. “We can’t afford it like we used to. The economy isn’t getting better for anyone, especially not me.”
Charles, a call center representative at a company that handles customer service for Medicare and Affordable Care Act health plans, received a raise to $18.21 an hour two years ago. But it wasn’t a big increase. She doesn’t even remember his size.
This month, Charles participated in a one-day strike against his employer, Maxim. She and her colleagues are seeking higher wages and more affordable health insurance. Both of Charles’ children are on Medicaid, she said, because Maximus’ health insurance is too expensive.
Eileen Cassidy Rivera, a spokeswoman for Maximus, said a recent survey of its 40,000 employees found that three-quarters of those who responded said “they would recommend Maximus as a great place to work.” .
“Over the past five years, we have increased compensation, reduced direct health care costs and improved the work environment,” Rivera added.
Rising prices have been a key driver of a wave of strikes and other forms of union activism this year, with unions representing auto workers, Teamsters And airline pilots obtain significant salary increases.
Other factors also explain why many people remain dissatisfied with the economy. Political partisanship is one of them. With Biden occupying the White House, Republicans are much more likely than Democrats to call the economy bad, according to the University of Michigan’s monthly consumer confidence survey.
Karen Dynan, a Harvard economist who served in the administrations of George W. Bush and Obama, noted that distinct changes in economic sentiment occur after a new president is inaugurated, voters of the opposite party to the president quickly shifting to a more negative view. .
“The partisan divide is stronger than before,” she said. “Partly because the country is more polarized. »
Despite this, many Americans, like Charles, still feel the pain of inflation. The national average price of a gallon of milk reached $3.93 in October, up 23% since February 2020, just before the pandemic hit. A pound of ground beef, at $5.35, is 33% higher than at the time. Average gas prices, despite a big drop from last year, are still 53% higher, at $3.78 per gallon on average.
All of these increases far outpaced the overall rise in prices, which rose nearly 19% over the same period.
Edelberg said rising prices for items people typically buy most often is why many people are unhappy with the economy — even as Americans have remained confident enough to keep their spending at a healthy pace.
“Overall, their purchasing power is doing pretty well,” Edelberg said.
Yet large-scale national data does not capture the experience of ordinary Americans, many of whom have not seen their wages keep pace with prices.
“In real terms, most people are probably pretty close to where they were before the pandemic,” said Brad Hershbein, senior economist at the Upjohn Institute. “But there are many exceptions.”
Low-income Americans, for example, have generally enjoyed the largest pay increases since the pandemic. Fierce competition for front-line workers in restaurants, hotels, retailers and entertainment venues has forced companies to offer significant pay increases.
But poorer people generally face a higher rate of inflation, according to economic researchas they spend a greater proportion of their income on such volatile expenses as food, gasoline and rent – items that have absorbed some of the biggest price increases.
“At the lower end of the income scale, people got somewhat higher wage increases,” said Anthony Murphy, senior economic policy adviser at the Federal Reserve Bank of Dallas. “But I don’t think that compensates them for the fact that inflation was so much higher. They consume a different set of goods than the average.
Census Bureau surveys studied by Murphy and his colleague Aparna Jayashankar show that nearly half of Americans say they are “very stressed” about inflation, a figure that is little changed from the previous year, although inflation has fallen since last year.
Even for those whose incomes have kept pace with prices, research has long since discovered that people hate inflation more intensely than its economic impact suggests. Most people don’t expect their salaries to keep up with rising prices. Even if this is the case, the salary increase may occur with a lag.
“They are obsessed with the fact that the prices they pay for very important things – gas, food, grocery prices, rent – always seem high, even though they are not increasing as quickly as they are. ‘Before. ” Hershbein said.
“If everyone had lost their jobs,” he said, “we would focus on that.” »