Americans are pessimistic about the economy and their financial prospects, with more than half of respondents in a recent CBS News poll saying they are struggling to pay their bills. The reasons for this pessimism are clear: Not only has inflation eroded their salaries, but many have also lost their incomes, with census data showing that median household incomes fell in one-third of U.S. states last year.
According to the latest data from the U.S. Census Bureau, many of the 17 states where families lost their economic base are concentrated in the Midwest and Northeast, including election-swing states like Michigan, Ohio and Pennsylvania. The data shows that in 29 states, the change in income was not statistically significant, while residents of only five states saw their incomes rise enough to a measurable degree.
State-level data may help shed light on why many Americans are unhappy with the economy, which in many ways appears strong and unemployment is low.
However, despite the strong rebound in the labor market from the pandemic, the most direct way for people to experience the economy – how much money they make – has not. Median U.S. household income slipped 2.3 percent to $74,580 last year — the third straight year of falling income.
Families are dealing with high inflation and the end of pandemic-era benefits that pocket extra money through federal stimulus checks and expanded child tax credits. The money is now gone. But experts point out that inflation, while fading, remains high.
"Consumer confidence remains low, close to lockdown levels at the start of the pandemic," said Jesse Wheeler, senior economist at Morning Consult. "It's safe to say that the U.S. economy is in better shape than it was then, so that begs the question: Why are Americans so frustrated with the economy?"
Wheeler believes that in addition to concerns about a potential recession and stock market volatility, the answer can be found in years of inflation. "It takes a long time for consumers to feel good about the economy," he noted.
More poor seniors
The decline in household incomes in the Midwest and Northeast may be due to the combined effects of inflation, which can erode purchasing power if incomes do not match or exceed the rate of price increases, the mix of jobs workers in these states, and demographics.
For example, many older persons are particularly vulnerable to inflation because they live on a fixed income. While the Social Security Administration adjusts benefits annually in line with inflation, some critics say the cost-of-living adjustment has not kept pace with rising prices.
Last year, the poverty rate for people over 65 soared to 14.1% in 2022, an increase of more than three percentage points.
Many states with falling incomes last year have older populations than the entire United States. For example, about 20 percent of residents in New Hampshire, where median household income fell the most, are over 65, compared with about 17 percent in the U.S. as a whole.
According to Morning Consult's 2021-2022 Daily Consumer Confidence Index, consumer confidence remains subdued overall. But Wheeler noted that there are some similarities between state-level sentiment and median household income data, though they don't correspond directly.
"Generally, the decline in consumer confidence was particularly strong in the Midwest from 2021 to 2022," he noted. In addition, some states with increased real median incomes saw relatively small declines in consumer confidence: Delaware, Alabama, Alaska and Utah.
Meanwhile, the only state in the Morning Consult index to record a rise in consumer confidence was Alaska, which saw the second-highest increase in household income last year.
Household incomes are likely to improve in 2023 as wage growth eventually outpaces inflation. But Wheeler noted that the impact of rising interest rates has pushed up the cost of debt, and that restoring student debt payments could dampen many people's budgets.
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