Americans are feeling discouraged about the economy and their financial prospects, with over half of respondents to a recent CBS News poll stating they are struggling to meet financial obligations. The causes for that pessimism are evident: Not only has inflation impacted their wages, but many individuals are also earning less, with Census data revealing that median household income decreased in a third of U.S. states last year. .Thank you for reading this post, don't forget to subscribe!
According to recent statistics from the U.S. Census Bureau, a significant number of the 17 states where households have lost economic ground are concentrated in the Midwest and Northeast, including important political swing states like Michigan, Ohio, and Pennsylvania. The data indicates that income did not experience statistically significant changes in 29 states, while only five states witnessed an improvement in residents’ incomes that could be quantified.
State-level information may help elucidate why many Americans have become dissatisfied with the economy, which, by many measurements, appears robust with a low unemployment rate.
However, while the job market has rebounded strongly from the pandemic, people’s direct encounter with the economy, namely their earnings, has not. The median household income in the United States declined by 2.3% last year to $74,580 – marking the third consecutive year of income decline.
Families are contending with high inflation, compounded by the cessation of pandemic-era benefits which provided additional funds through federal stimulus checks and the expanded child tax credit. That additional money has now disappeared, but experts warn that despite a decline, inflation remains high.
“Consumer sentiment still remains quite low, similar to levels seen during the initial stages of the pandemic’s lockdown,” remarked Jesse Wheeler, a senior economist at Morning Consult. “It is fair to say that the U.S. economy is in a better state than ever before, so it raises the question: Why do Americans feel so depressed about the economy?”
Wheeler believes the answer lies in years of inflation, as well as concerns about a potential economic downturn and the volatility of the stock market. “It takes a long time for consumers to develop confidence in the economy,” he stated.
Increased senior poverty
The decline in household income in the Midwest and Northeast may be attributed to a combination of the impacts of inflation, which can erode purchasing power if earnings fail to match or surpass the rate of price growth experienced by workers in those states, as well as a combination of lost job opportunities and demographic factors.
For instance, senior citizens are particularly vulnerable to the effects of inflation due to their reliance on fixed incomes. While the Social Security Administration adjusts benefits for inflation annually, some critics argue that cost-of-living adjustments do not keep up with rising prices.
Last year, the projected poverty rate for individuals over 65 was expected to rise to 14.1% in 2022, a rise of over three percentage points.
Many of the states that experienced income declines last year have higher proportions of elderly residents compared to the national average. For example, around 20% of New Hampshire residents, which saw the most significant decline in median household income, are over the age of 65, compared to approximately 17% in the overall U.S. population.
According to Morning Consult’s daily index of consumer sentiment from 2021 to 2022, consumer confidence remains weak overall. Nevertheless, there are some correlations between state-level sentiment and median household income data, although they are not directly aligned, mentioned Wheeler.
,“Generally speaking, the decrease in consumer confidence from 2021 to 2022 was particularly pronounced in the Midwest,” he commented. “Furthermore, the few states that observed increases in real median income experienced relatively smaller declines in consumer confidence, namely Delaware, Alabama, Alaska, and Utah.”
Meanwhile, the sole state that reported an increase in consumer sentiment in Morning Consult’s index was Alaska, which recorded the second-largest gain in household income last year.
Household incomes may see improvement in 2023 as wage growth finally outpaces inflation. However, Wheeler stated that the impact of higher interest rates, which have raised the cost of loans, as well as the resumption of student loan payments, will burden many individuals and reduce their budgets.
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