Americans, hit by inflation, are feeling worse financially – especially parents

US President Joe Biden wears sunglasses given to him by supporters at the Westwood Park YMCA in Nashua, New Hampshire, on May 21, 2024. AFP (AFP)
US President Joe Biden wears sunglasses given to him by supporters at the Westwood Park YMCA in Nashua, New Hampshire, on May 21, 2024. AFP (AFP)

Summary

An annual Fed survey finds that fewer Americans say they are ‘doing at least OK’ financially.

WASHINGTON–The share of U.S. adults who said they were doing OK financially fell last year, underscoring one of the key hurdles to President Biden’s re-election hopes.

The Federal Reserve said Tuesday that 72% of respondents to its annual survey of financial well-being said they were “doing at least OK" in 2023. That was down from 73% the prior year and 78% in 2021, when households were flush with cash from pandemic stimulus checks.

The decline in self-reported well-being was especially pronounced among parents living with kids under the age of 18. Among that group, only 64% said they were doing all right financially, down from 69% in 2022 and 75% in 2021.

By many measures, the U.S. economy has rarely been better in the past half-century than it is now. Unemployment has been below 4% for 27 months, the longest stretch in more than a half-century. Consumer spending rose a brisk 5.8% in March from a year earlier – and was up roughly 30% from prepandemic levels. The S&P 500 stock index is near record highs.

Yet Biden trails former President Donald Trump in both national polls and in key battleground states. A CNN poll in mid-April showed that voters have an increasingly rosy view of Trump’s presidency. Fifty-five percent said they view the former president’s four-year term as a success, up from 41% when he left office in 2021 and well above the 39% who rate Biden’s presidency as a success.

The disconnect has puzzled economists for months.

It all goes back to inflation

But the Fed survey added further evidence to the most likely explanation for Americans’ sour take on the economy: inflation. The share of survey respondents who reported price increases as their main source of financial challenges rose to 35% last year from 33% in 2022 – and 8% in 2016.

The increase in people troubled by rising prices occurred even though inflation itself peaked in 2022 and actually slowed over the course of last year. That suggests that, while economists tend to focus on price changes from one year to the next, individuals have a longer memory.

Adjusted for prices, U.S. disposable incomes reached their all-time high in the first quarter of 2021, at a level 10% higher than in the first quarter of this year, according to Census data. That windfall was the result of two things: aggressive federal spending to offset the pandemic – including thousands of dollars of stimulus checks to households with children – and inflation that had yet to awaken.

Consumer sentiment, as measured by the University of Michigan, has risen about 60% from its June 2022 nadir, when inflation reached a four-decade high. But it is down 21% from February 2020, the month before the pandemic upended a humming economy, and it remains below its lowest point of the 2001 recession.

Write to Paul Kiernan at paul.kiernan@wsj.com

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