National Opinions

OPINION: When consumers tell you they’re hurting, believe them

If people tell you they’re in economic distress, believe them. Americans keep saying they are concerned about the economy and think it’s in bad shape; in one recent poll 83% of Americans think the economy is fair or poor, and 72% expect it to get worse. But depending on how you look at it, the data tells a different story -- that things have never been better. Unemployment has not been this low in nearly 55 years, nominal wages are going up, and people are still spending.

The latest new survey on economic well-being from the Federal Reserve Bank may reconcile the disconnect. It reveals something that should be pretty obvious: A high-inflation environment is terrible for households. Even though people are spending and getting wage increases, they can still be suffering.

It should not need saying, but inflation is really bad. And yet we are regularly subjected to politicians and journalists insisting that everything is great and that people just don’t understand how good they really have it.

To be fair, there are a lot of confusing signals out there. In the latest Fed survey, 74% of households say they are doing fine financially, the same rate as it was in 2017 (not a bad time for the economy). But if you dig a little deeper in the survey there are some cracks that suggest fine does not mean great, either. There has been a big jump in the share of people who say they are worse off, 35% compared with 20% in 2021. Only 19% of households think they are better off, though, again, that’s similar to the heady days of 2017 and 2018 when inflation was something only old people worried about. Today, inflation is the biggest worry for households across all income levels.

Inflation is often described as a tax on households because it makes everything more expensive. While the survey reveals many people -- about 33% -- got raises in 2022, the pay increases are not keeping up with inflation, which means most households have been getting poorer the last two years.

Consumer spending may still look healthy, but we are all getting less for our money. Any American consumer can attest that everything is expensive and generally feels terrible. According to the survey, 66% of households stopped using a product or used less of it because of inflation, and 64% switched to a cheaper alternative. Even if inflation-adjusted consumption is still increasing, it doesn’t fully capture the switch to some lower-quality goods and services or just that things that used to be high-quality aren’t that great anymore. For example, hotel stays are a worse experience because of the labor shortage, but they still cost more. The result is many households are getting less even if they are spending more. Only 49% of households are spending less than they make (down from 55% last year).

Inflation makes you poorer not only by eroding your spending power; the risk and uncertainty it poses is another cost. An asset that has a riskier return is considered less valuable than a comparatively safer asset. By the same logic, if prices are less predictable, the value of your wages goes down. It’s hard to plan a budget when you don’t know what the price of eggs will be. Uncertainty means more stress, and it eats into your leisure because you have to spend more time comparison shopping for the few deals you can find.


It’s hard to understate how good we had it during the decades of low and predictable inflation. Perhaps we can credit good central bank policy for those years, or just luck from more trade and technology. But the survey reveals that those days might not be coming back for a while.

The survey also shows we shouldn’t take much comfort in strong sales numbers and a strong labor market. Households will probably keep spending as long as they have jobs and credit, but inflation is eating into people’s savings. This makes them more vulnerable to financial hardship if they lose their jobs when the labor market goes south. At that stage, they’ll have little choice but to cut back on spending. This may actually help cool inflation, but there’s no guarantee it will be enough to bring it down to pre-pandemic levels.

So households will be in even worse shape. Americans would have less money but still have to spend more to get less. That seems like a good enough reason to me to be dissatisfied with this economy.

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This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners. Allison Schrager is a Bloomberg Opinion columnist covering economics. A senior fellow at the Manhattan Institute, she is author of “An Economist Walks Into a Brothel: And Other Unexpected Places to Understand Risk.”

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