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Fed Study Offers New Clues That Help Explain U.S. Gloomy Mood
An enduring oddity of Joe Biden’s presidency is that consumer confidence is weak and Biden poor approval ratingsdespite record job gains It is solid economic growth.
So, what is happening? A new Federal Reserve Analysis of Domestic Finances offers some clues.
In its annual consumer survey, the Fed found that 72% said they were “at least okay” with their finances, meaning people were “living comfortably” (33%) or “doing well” (39%).
This is close to the 2022 level of 73%, but is down sharply from 2021’s 78% and matches the low reached in April 2020. The last full year of data in which this share of consumers said they were “at least well ” it was 2016.
And the share of Americans who feel worse than they did a few years ago — even if that number increases slightly — could determine whether voters in this year’s presidential election think Biden deserves another term.
Here are four insights from the Fed’s latest analysis.
The pandemic still shapes consumer attitudes
As noted previously, the best level of financial fitness reported by consumers during the past 11 years occurred in 2021, when 78% said they were at least in good health. The second best level came in July 2020, with 77%. But it wasn’t because the economy was growing.
In 2020, the COVID pandemic was raging and many Americans were stuck at home. Things improved in 2021 after vaccines began rolling out, but the economy only fully recovered from the COVID setback in mid-2022.
Here’s what else was happening in 2020 and 2021: Americans received huge amounts of stimulus money, including government checkshelp for businesses, tax breaks for parents, and payment suspensions for student loan borrowers.
President Joe Biden speaks about the PACT Act at the Westwood Park YMCA, Tuesday, May 21, 2024, in Nashua, NH (AP Photo/Alex Brandon) (ASSOCIATED PRESS)
Those programs are basically over. Many Americans banked extra money during the pandemic, but economists think this “surplus savings” are now completely exhausted.
What consumers may actually be saying is that they now feel worse off compared to the COVID years, when unprecedented amounts of federal aid produced an abnormal and temporary bubble of financial security.
The problem for Biden is a recent bias on the part of voters, which means many people will not make an accurate comparison of their well-being now compared to pre-COVID levels.
They will simply feel the deterioration of the days when “stimulating checks” reinforced their bank balances and blamed whoever was responsible.
Working Parents Are Exceptionally Stressed
One notable group that has gotten worse over the past year is parents.
The share who said they were “fine” financially fell to 64% in 2023 from 69% in 2022. Everyone else, excluding parents, remained the same at 75%.
The story continues
From 2021 to 2023, the share of parents who said they were “fine” fell by 11 percentage points. Among the group that represents everyone else, it dropped only four points.
This could reflect a stimulus measure that substantially increased the child tax creditbut expired at the end of 2021.
Census Bureau data shows the child poverty rate fell to 5.2% in 2021 from 9.7% in 2020 – then jumped to 12.4% in 2022.
Most experts believe these huge swings come from intermittent COVID stimulus, including the expansion of the child tax credit. Biden and many Democrats want to make this expansion permanent, but I couldn’t get the votes in Congress.
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Food inflation is the worst
In the Fed survey, 35% of respondents cited inflation as a problem and the Fed highlighted food prices as a particular concern.
“When describing the challenges related to inflation, many people mentioned the cost of food and groceries,” the report explains. This is similar to findings from a November report Yahoo Finance-Ipsos Research in which 67% of respondents said food inflation was hurting them the most. Gasoline came in second place, with just 15%.
Food prices have moderated, with the annual inflation rate now just 1.1%.
However, as most consumers know, food prices have risen 21% over the past four years and are unlikely to fall again. Consumers are largely forced to pay these higher prices.
Some things are going right
The biggest improvement from 2022 to 2023 was an increase among non-retirees who say their retirement savings plan is on track. That figure rose from 31% to 34%, and is likely higher now given the stock market’s rally over the past six months.
As for retirees, they are doing very well, with 80% saying they are doing well financially. This is the best of any demographic group in the study.
If they were the only ones voting in 2024, Biden could be in very good shape.
Rick Newman is a senior columnist for Yahoo Finance. Follow him on Twitter at @rickjnewman.
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