Americans Are Down on the Economy (again), with Inflation Topping Election Concerns

The Washington Post / Abha Bhattarai

12:50 JST, May 20, 2024

After a spurt of optimism, Americans are feeling a little more glum about the economy – again.

Consumer sentiment, a gauge of Americans’ economic perceptions, is at a six-month low, according to a closely watched index by the University of Michigan. The measure notched its biggest drop since 2021, reflecting the persistent tug of inflation on household budgets and fueling fears that rising prices, unemployment and interest rates could all worsen in the coming months.

That pessimism is altering consumers’ spending habits. McDonald’s, Home Depot, Under Armour and Starbucks all recently reported disappointing earnings, as people cut back on fast food, kitchen renovations, sneakers and afternoon lattes. Retail sales were flat in April after decent pickups in February and March. Meanwhile, Walmart reported a strong first quarter this past week, nudged upward by high-income shoppers, executives said.

And gas prices, while easing in recent weeks, are up overall for the year, just ahead of the busy summer season.

“For the last couple of years, the economy has been driven by household spending, and now people are starting to say, ‘Let’s retrench here,’” said Jeffrey Roach, chief economist for LPL Financial. “The pressure from inflation has finally started to hit even upper-income households.”

The economy, while still remarkably strong, has slowed in recent months as the Federal Reserve tries to get inflation under control. Employers are adding fewer jobs, wage growth has decelerated, and Americans are holding off on big purchases like homes, cars and washing machines.

It could cast a pall over this fall’s presidential election and add new complications for the Biden campaign, which has already struggled to convince Americans that the president’s policies have improved their financial fortunes.

Polls consistently show that Americans favor former president Donald Trump over Biden on economic issues. In April, some 36 percent of Americans said the economy is the country’s top issue, up from 30 percent in February and March, Gallup polls show. More people also cited inflation and high cost of living as larger concerns than they did the previous month.

The White House has doubled down on its economic message – touting its progress on inflation but conceding that it must do more to lower the cost of health care and housing as well as cut taxes for middle-class families.

“Families are still struggling with prices that are too high,” said Jared Bernstein, chair of Biden’s Council of Economic Advisers. “We’ve made a lot of progress in the right direction, and we are going to keep fighting to lower costs for families and make billionaires and corporations pay their fair share.”

In a statement, the Trump campaign said the former president would “uplift all Americans” by lowering taxes and raising wages. “The American people cannot afford four more years of Bidenomics,” spokeswoman Karoline Leavitt said.

Consumer spending, which makes up more than two-thirds of the economy, has been critical in driving growth and keeping the country out of a recession during this period of surging inflation these past few years. Americans emerged from the coronavirus pandemic ready to spend – and had the means to do so, thanks to extra savings and stimulus money.

But as that cushion has run out while prices remain high, families are beginning to pull back.

“We’re going into the summer doldrums, and consumers want a clear plan for how to work through some of these challenges,” Roach said. “Rent prices are coming down, but they’re still high. The cost of everyday life is still high – not that the executive branch has much to do with it, but they certainly get blamed for it.”

Although inflation eased in April, costs for housing and energy continued to climb. Gas prices in particular have become a sticking point for voters. The average price at the pump, about $3.61 per gallon, has risen more than 50 cents since the start of the year, according to the U.S. Energy Information Administration.

While that might not add up to much – especially in the context of a monthly budget – gas prices have an outsize impact on people’s perception of the economy.

“People tend to know the cost of gas, block by block, and they deeply resent it when gas prices go up right before summer vacation,” said Celinda Lake, a Democratic pollster. “And voters are already jittery and frustrated and unnerved. Even when there’s good economic news, it’s hard for people to celebrate because they wonder, ‘Well, what’s around the corner?’”

In recent weeks, some of the country’s largest companies have mentioned they are feeling the effects of inflation. At Starbucks, for example, customers are coming in less frequently.

“We continue to feel the impact of a more cautious consumer,” Starbucks CEO Laxman Narasimhan said in an earnings call last month. “Many customers are being more exacting about where and how they choose to spend their money, particularly with stimulus savings mostly spent.”

In Pittsburgh, Jenny Shimkus is thinking twice about every purchase these days. She has stopped eating out and frequently drives to other neighborhoods for cheaper gas. When her vacuum cleaner recently broke down, she spent three days trying to fix it, to no avail.

“Five or 10 years ago, I would’ve said, ‘Forget it,’ and just bought a new vacuum,” she said. “But now I’ll try anything to save a few dollars.”

Shimkus, a 40-year-old single mom, took a lower-paying job at a family-owned gyro shop after her lucrative bartending job disappeared during the pandemic. She made $38,000 last year – $18,000 less than she used to – and says she’s watched her hopes of homeownership slip away.

But while the economy would typically be among her top considerations in assessing presidential candidates, Shimkus says it isn’t as important this year. She’ll vote for Biden no matter what, because he supports abortion rights legislation and LGBTQ+ rights.

“Of course I worry about the economy, especially because my 15-year-old is going to be moving out in a few years,” she said. “Is he going to be able to afford things? Can he get his own apartment? Will he be able to get a job? But right now I’m pushing that aside to focus on the bigger issue of human rights.”

The Biden campaign has been playing up the president’s support of abortion rights in hopes of winning back women and Democrats. In recent weeks, the White House has also taken other steps, such as widening student loan forgiveness and proposing an overhaul of how marijuana is classified at the federal level, to shift the focus to social issues that set the president apart from his opponents.

In San Antonio, gas prices are a big deal to Anthony Serna. He spends about 40 hours a week driving for Uber and Door Dash, and says one tank of gas in his Nissan Pathfinder can wipe out nearly a day’s earnings.

“There’s a point where this job just isn’t worth it anymore, and I think I’m getting there,” said Serna, 25. “I’m having to cherry-pick rides because otherwise gas and maintenance will wipe out everything I make.”

Many of his friends have quit gig work altogether because of rising costs, and he’s wondering if he should do the same. Serna voted for Trump in the last election but says he’s completely undecided now – gas prices and the economy will play a key role in his decision in November, though for now he can’t see himself voting for either Trump or Biden.

“I know Biden has tried to do things to lower prices, but I feel like it hasn’t been enough,” he said. “We’re still struggling here. I wish there was some other option in this election.”