Americans Feel Financially Worse Off Despite "Booming" Economy, Blame Inflation

The American economy continues to grow and job opportunities remain abundant, yet many Americans are not feeling better off. In fact, half of Americans are feeling worse off, despite the unemployment rate being at a 50-year low.

A recent Gallup report shows that only 35% of Americans are financially better off this year compared to the previous year, while a staggering 50% are worse off. This is similar to the Great Recession era in 2008 and 2009. Konrad Petaitis, Lead Americas Analyst at Gallup, believes that inflation is the primary reason for this disconnect between an improving economy and the worsening financial state of American families.

According to Petaitis, "the largest driver behind the polling results is inflation, which, unlike other macroeconomic metrics such as capital investment, tend to have a day-to-day impact on people. They see it daily at the gas pump or in the supermarket."

Dan North, a Senior Economist at Allianz Trade, agrees with Petaitis and sees the 40-year high inflation as a prime driver of how Americans felt in 2022 compared to the previous year. North states, "Of course, some of the necessities of life were among the hardest hit, including food which peaked at 11.4% in August, shelter reaching 7.5% y/y in December 2022 and still rising, while gasoline peaked at an incredible 60% y/y in June. Since these are items that most people can't cut from their budget, inflation hit the lowest income brackets the worst."

Housing affordability has also hit a record high in 2012 compared to a 37-year low in 2022, adding to the financial anxiety of American families. The 30-year mortgage rate had been falling through 2012 from 3.9% to 3.5%, whereas in 2022 it rose from 3.5% to 6.4%, hitting a peak at 6.9% in October. This has made it increasingly difficult for Americans to pay their monthly bills.

Petaitis identifies a couple of factors that have further aggravated the impact of inflation on American families, such as underemployment. "The percent of people employed part-time but preferred to be working full-time – or other measures of under-utilization have remained largely stable since early 2022," he explained.

"It undercuts the narrative that the U.S. is enjoying a pretty robust labor market."

Political polarization has also reached levels not seen since the 1970s, with both parties moving away from the political center ground, and the number of "moderate" congresspeople declining significantly. This issue is important because partisan individuals are now more likely to see policies implemented by the rival party as negative or detrimental to the wider country. Political polarization is particularly relevant when discussing issues with a wider partisan divide such as immigration, protecting the environment, Covid-19, and budget deficits.

In addition, there are rising crime rates in major urban centers in the U.S., with both the Republican and Democratic parties admitting that reducing crime should be a top priority for the government. "Roughly 6 in 10 Republicans and 4 in 10 Democrats say that reducing crime should be a top priority for the government," Petaitis added.