The fastest inflation in four decades has Americans feeling dour about the economy, even as their own finances have, so far, held up relatively well.
Just 10 percent of registered voters say the U.S. economy is “good” or “excellent,” according to a New York Times/Siena College poll — a remarkable degree of pessimism at a time when wages are rising and the unemployment rate is near a 50-year low. But the rapidly rising cost of food, gas and other essentials is wiping out pay increases and eroding living standards.
Americans’ grim outlook is bad news for President Biden and congressional Democrats heading into this fall’s midterm elections, given that 78 percent of voters say inflation will be “extremely important” when they head to the polls.
It could be bad news for the economy as well. One long-running index of consumer sentiment hit a record low in June, and other surveys likewise show Americans becoming increasingly nervous about both their own finances and the broader economy.
Economists have long studied the role of consumer sentiment, which can be driven by media narratives and indicators unrepresentative of the broader economy, like certain grocery prices or shortages of particular goods. At least in theory, economic pessimism can become self-fulfilling, as consumers pull back their spending, leading to layoffs and, ultimately, to a recession.
Christina Simmons grew up poor and has worked hard to give her 7-year-old son a better life. She has climbed the ranks at the health insurer where she works near Jacksonville, Fla., and has more than doubled her salary over the past few years. Yet she feels as if she is falling behind.
“I worked my butt off to get to where I’m at so I could take vacations with my son,” she said. “We would take off for the weekend and get a hotel room in another state, and go do a hike and see a waterfall and order a pizza in a hotel room and all of that. And I just can’t do that anymore.”
Ms. Simmons, 30, is still able to make ends meet, partly because she is able to save money on gas by working remotely. But she is worried about what could happen if the economy slows and puts her job in jeopardy — one consequence of being promoted, she said, is that she is farther from customers, making her more vulnerable to layoffs. She has cut out modest luxuries, like a gym membership and nights out with friends, to build up her savings.
“I’m saving the money just in case it gets even worse,” she said. “I’m being more strict than I have to because I don’t know how it’s going to go.”
What is inflation? Inflation is a loss of purchasing power over time, meaning your dollar will not go as far tomorrow as it did today. It is typically expressed as the annual change in prices for everyday goods and services such as food, furniture, apparel, transportation and toys.
What causes inflation? It can be the result of rising consumer demand. But inflation can also rise and fall based on developments that have little to do with economic conditions, such as limited oil production and supply chain problems.
Is inflation bad? It depends on the circumstances. Fast price increases spell trouble, but moderate price gains can lead to higher wages and job growth.
Can inflation affect the stock market? Rapid inflation typically spells trouble for stocks. Financial assets in general have historically fared badly during inflation booms, while tangible assets like houses have held their value better.
Decisions like Ms. Simmons’s, multiplied across millions of households, could help cause the very recession she fears.
They could also have political consequences. Ms. Simmons voted for Donald J. Trump for president in 2016, then for Mr. Biden in 2020. But she plans to switch back to supporting Republicans in congressional elections this November, in large part because of the rising cost of living. She isn’t sure how much responsibility Mr. Biden bears for inflation, she said, but she knows he hasn’t managed to fix it.
Mr. Biden and his advisers have argued that while inflation is a serious problem, the economy is strong in other ways. They point to the robust job market, the record-breaking rebound in economic output and wage growth that has been fastest for low-wage workers. But those arguments have failed to mollify voters.
Even among Democrats, only 20 percent of voters said the economy was good or excellent; among independents, some of whom Democrats must woo if they hope to retain control of Congress, that figure is just 8 percent. (Only 4 percent of Republicans say the economy is doing well.)
But while voters are pessimistic about the overall economy, many say their own finances are still holding up relatively well. Forty-three percent of voters in the Times/Siena survey said their personal financial situation was good or excellent. Even among those who said the national economy was “poor,” a third of voters said they were doing fine personally.
Jamie O’Regan makes a six-figure salary as the director of alumni relations for a Brooklyn private school, and lives in a Jersey City apartment with a rooftop pool.
But Ms. O’Regan, 38, is feeling the pinch of higher prices. Starting July 1, her landlord raised her rent by $500, to $2,900 a month. She got rid of her car, which was costing $600 a month between parking, insurance and loan payments. Able to work from home during the summer, she has saved $100 per week by not commuting. She’d like to buy a house, but sees no path to doing so, and now is considering taking on a roommate.
“If I feel like I’m living paycheck to paycheck, how does the average person function?” Ms. O’Regan said. “There doesn’t seem to be anyone who feels immune to this.”
Economists say weak consumer sentiment isn’t likely to turn an otherwise healthy economy into a sick one. But it could amplify or prolong an already-bad situation. In marginal cases, an official recession declaration — and the attendant media attention — can create markedly worse outcomes than weak economies that barely escape recession.
The relatively brief recession of 1990 and 1991, for example, didn’t have an obvious cause like an asset bubble. For that reason, scholars have theorized that it may have been fueled by a poor national mood brought on by the Gulf War, an oil price shock and the interest-rate increases.
Still, the link between consumers’ perceptions and economic outcomes is not straightforward. Sentiment dropped sharply following the terrorist attacks of Sept. 11, 2001, for example, but actual spending rebounded rapidly, possibly because of a rally-around-the-flag effect that helped buoy the economy quickly past the dot-com bust.
Unlike in 2001, however, the Federal Reserve is actively trying to slow down the economy, meaning Americans have good reason to be cautious. Wages aren’t keeping up with rising prices, the housing market has already begun to cool, and consumer spending, adjusted for inflation, fell in May. Credit card balances are growing and delinquency rates are rising, signs that some households are already struggling to pay their bills.
The Times/Siena poll found that higher earners were worried about the economy, but mostly felt confident in their own finances. Among low earners and those without a college degree, however, hard times are already here. More than 80 percent of voters earning under $50,000 said their personal financial situation was “poor” or “only fair,” compared with about 30 percent of those earning more than $100,000.
High gas prices are eating away at the money Anna Walker earns as a driver for DoorDash in Southern California. At the same time, she has noticed customers tipping less, which she attributes to their own budgets being stressed.
“We go out and get something to eat, and we’re like, ‘Wait a minute, wasn’t this a dollar cheaper a few days ago?’” she said. “I have to keep making more and more money.”
During the school year, Ms. Walker, 50, drove from the moment she dropped her 11-year-old daughter off at school until 7 or 8 p.m. Now, with school out for summer, her daughter rides along with her — Ms. Walker can’t afford to send her to camp.
For now, Ms. Walker said, she can make it work. But she is one crisis away from disaster.
“I feel like I’m in an OK situation as long as I work,” she said. “But I know that the minute my car breaks down, I’m going to be homeless.”
Ms. Walker voted for Mr. Biden in 2020 and considers herself a Democrat. But she said that Washington’s failure to help struggling families like hers had left her disillusioned, and that she no longer planned to vote in November.
“I don’t care if the House has more Republicans, has more Democrats,” she said. “I don’t think those people care about us at all, to be honest with you.”
The Times/Siena survey of 849 registered voters nationwide was conducted by telephone using live operators from July 5 to 7. The margin of sampling error is plus or minus 4.1 percentage points. Cross-tabs and methodology are available here.