Why you feel like the economy is crappy even though it's not
Inflationmay not feel good, but economists say most Americans are withstanding it.
savingsremain solid, jobs are plentiful, and workers have the power to bargain for higher wages.
The US job market continues to see a strong recovery — a bright side as inflation woes continue to saddle Americans.
The unemployment rate again was 3.6% in April, same as in March. Earnings rose, but labor force participation rates dropped. The US also saw 428,000 jobs added last month. That means the US could be back at pre-pandemic employment levels this summer.
But the employment situation only tells part of the story of the US
Inflation may not feel good, but economists told Insider, there's no need to panic — for now.
"People are noticing the higher prices, and that in many cases, their wages aren't keeping up," Tara Sinclair, an economics professor at George Washington University, told Insider. She explained it's the seesaw between rising wages accompanied by rising prices that's so confusing.
It's probably why US consumer confidence is going down, but the overall data shows Americans' finances are actually keeping up. For one, there are plenty of jobs to go around, Americans are still spending, and the savings amassed during the pandemic is still helping to keep the economy afloat.
But wages aren't keeping up with inflation, which can be a problem for US workers.
"The dichotomy or sort of dilemma we're seeing with wage growth right now is that in nominal terms, it's very strong and by some measures stronger than we've seen in several decades, but inflation obviously remains incredibly high," Nick Bunker, economic research director at Indeed Hiring Lab, told Insider after the release of the newest employment and average hourly earnings numbers by the Bureau of Labor Statistics.
Bunker said that although there is a lot of strength in the economy right now — from household savings to the employment situation — there's also a lot of uncertainty and risks — from inflation, the ongoing pandemic, and Russia's invasion of Ukraine right now, he noted.
Inflation is hitting Americans where it hurts the most
On paper, it looks good that wages are going up. In response to a historic labor shortage, employers are attempting to lure in workers who are holding out for higher pay, safer working conditions, and more fulfilling careers, among other factors.
Average hourly earnings increased to $31.73 per hour in March, according to data from the Bureau of Labor Statistics, a 5.6% increase from the year before. But inflation rose at a rate of well over 8% at the same time, according to the Consumer Price Index. That means Americans took a pay cut, according to seasonally adjusted data published by the Labor Department.
Plus, higher prices are hitting some of the products Americans need the most: Car prices, for both used and new, grown exorbitantly before supply-chain troubles began to ease. This year, grocery prices are predicted to increase between 5% and 6% percent, while prices to eat out are predicted to increase between 5% and 6.5%, the United States Department of Agriculture said in a recent report.
On top of that, the US Census Bureau's most recent Household Pulse Survey reported that Americans may be running out of cash, resorting to uncomfortable — and potentially harmful — resources, such as greater credit card debt, loans, or pulling from retirement and savings. Among respondents who answered the question between March 30 and April 11, 15% said they found it very difficult to cover typical expenses in the last seven days, the survey found. Of that 15% of respondents, 44% said they're using credit cards or loans to meet their needs, while 34% said they're using money from retirement or savings accounts.
That's concerning, but Dean Baker, a senior economist at the Center for Economic
Baker told Insider he is "skeptical" of the Pulse survey, given that their response rate is "around 5% and has proven to be seriously misleading in the past."
"Most notably, the survey projected a tidal wave of evictions when the moratorium ended in September. We didn't see that," he said. "I think it is not generally representative."
But people are hanging on to their savings
Even though Americans' wages are decreasing after adjusting for inflation, the savings accrued during the pandemic are still providing a necessary cushion, data says. That's even as pandemic aid, such as the child tax credit, has ended, although they certainly took a toll on struggling households.
In a recent report, researchers at investment bank and financial services firm UBS, said that there are three reasons to believe that low and middle-income people are contending well against inflation.
"Americans are faring better for three main reasons: wage growth has generally been higher for lower-income workers employed in the service and hospitality industries, and they have more bargaining power," Matthew Mish, head of credit strategy at UBS, told Insider. "Economists don't see a lot of signs of weakness there."
Inflation may be wiping out wage gains overall, but according to Mish, lower-income workers are managing to score effective raises as their pay is growing faster than those higher up the income ladder.
The second reason is that most banks feel relatively good about providing credit, which means Americans will have easier access to cash if they need it.
"Although increased credit card debt might make it look like individuals with more inflation pressure are reaching for more credit card access, it's a very short-lived trend," Mish said, referencing the Pulse survey. "Especially after COVID, there was a noticeable decline in credit card debt." He said that represents a turn in behavior — Americans are taking on debt again after months of paying it off.
The third reason Americans are holding up is because of the savings they built during the pandemic, Mish said.
"The top quarter of the wealth distribution, especially the top 10%, is the one that saw the most accrued wealth, but the bottom half still benefited from their savings, and are still benefiting from it," he said.
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