Americans are feeling gloomy about the economy and their financial prospects, with more than half of the respondents to a recent CBS News poll say they’re struggling to pay the bills. The reasons for that pessimism are clear: Not only has inflation chewed into their paycheck, but many people are also earning less, with Census data showing that median household incomes dropped in one-third of U.S. states last year.
According to recent data from the U.S. Census Bureau, a significant number of states, particularly in the Midwest and Northeast, experienced a decline in household economic status. Notably, swing states like Michigan, Ohio, and Pennsylvania were among those affected. In contrast, the incomes of residents in only five states showed measurable improvement, while the incomes of individuals in 29 states remained relatively stable without significant changes.
The state-level data might provide insights into the reasons behind the negative sentiment of numerous Americans towards the seemingly strong economy, characterized by a low unemployment rate.
Yet while the labor market has rebounded strongly from the pandemic, the most direct way people experience the economy — how much they earn — hasn’t. U.S. median household income slipped 2.3% last year to $74,580 — the third consecutive year that incomes have waned.
Experts note that households are currently facing the challenge of dealing with both high inflation and the termination of pandemic-era benefits. These benefits, including federal stimulus checks and the expanded Child Tax Credit, had provided additional funds to households, but are no longer available. Although inflation is gradually declining, experts highlight that it still remains at a heightened level.
Jesse Wheeler, senior economist at Morning Consult, pointed out that despite some improvements in the U.S. economy, consumer sentiment remains significantly low, similar to the levels observed during the initial lockdowns at the beginning of the pandemic. This raises the question of why Americans are feeling pessimistic about the economy despite its relatively better condition.
According to Wheeler, the solution lies in analyzing years of inflation, alongside worries regarding a possible economic downturn and instability in the stock market. He emphasized that it typically requires a significant amount of time for consumers to regain confidence in the overall state of the economy.
More seniors in poverty
There is a possibility that the decline in household incomes in the Midwest and Northeast regions is a result of various factors. These factors include the effects of inflation on purchasing power, where earnings may not be keeping up with rising prices, as well as the types of jobs held by individuals in these states, and demographic trends.
Many senior citizens are particularly susceptible to the consequences of inflation due to their reliance on a fixed income. Despite the Social Security Administration’s annual adjustments to benefits to account for inflation, some critics argue that the cost-of-living adjustment fails to adequately match the rising prices.
In 2022, the poverty rate for individuals aged 65 and above witnessed a significant surge, reaching 14.1%. This marked an increase of over three percentage points compared to the previous year.
The states that experienced a decline in incomes last year tend to have a higher proportion of elderly residents compared to the national average in the U.S. For example, in New Hampshire, which saw the largest decrease in median household income, approximately 20% of its population is aged 65 and above, whereas the overall U.S. average stands at around 17%.
Consumer sentiment overall remains dour, according to Morning Consult’s daily Index of Consumer Sentiment from 2021 to 2022. But there are some similarities between state-level sentiment and the median household income data, although they don’t directly correspond, Wheeler noted.
“Generally speaking, the decline in consumer confidence from 2021 to 2022 was particularly strong in the Midwest,” he noted. “Also, a few of the states that saw increases in real median incomes saw relatively small declines in consumer confidence: Delaware, Alabama, Alaska and Utah.”
Alaska was the sole state to observe a rise in consumer sentiment in Morning Consult’s index. This was due to the state’s remarkable increase in household income, ranking second-highest nationwide last year.
Household incomes might improve in 2023 now that wage gains that are finally outstripping inflation. But Wheeler noted that the impact of higher interest rates, which has pushed up the cost of debt, and the resumption of student debt repayments could crimp budgets for many.
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