The Federal Reserve Board published its “Economic Well-Being of U.S. Households in 2022” report on May 22, an annual assessment of the financial well-being of adults and their families that draws from the Survey of Household Economics and Decisionmaking (SHED). Fed Governor Michelle Bowman says this data is crucial to help “refine our understanding of the economic challenges facing U.S. households.”
Fed data highlighted that rampant price inflation impacted households the most and made a dent in their overall economic health from the previous year, despite a strong labor market.
Seventy-three percent of adults said they “were doing at least okay financially in 2022,” down 5 percent from the previous year. Thirty-five percent of adults admitted to being worse off financially, the highest figure since the series began nearly a decade ago.
In addition, more adults endured spending increases than income gains, as 40 percent told the central bank that their family’s monthly expenses rose from the previous year, compared to 33 percent that reported a monthly income boost. Nearly one-quarter (23 percent) of adults conceded that their spending jumped, but their income was flat.
Inflation altered consumers’ spending and saving choices, with most saying they stopped consuming a product or used less due to price pressures. Over half (51 percent) trimmed their savings amid the inflationary climate.
The share of respondents who confirmed that they would cover a $400 emergency expense using cash or its equivalent was 63 percent, down 5 percentage points.
The 2022 economic environment also affected retirement goals, with 31 percent of non-retirees thinking their retirement savings plan was on track, down from 40 percent in 2021.
“Building retirement savings can have implications for financial well-being later in life,” the Fed researchers stated in the report. “Seventy-nine percent of retirees said they were doing at least okay financially. However, retirees who received income from sources such as wages, pensions, or investments were much more likely to be doing at least okay financially than those who had no private income.”
SHED figures discovered that nearly two-thirds of renters could not afford a down payment, impacting their ability to purchase a residential property.
“Some renters indicated they had difficulty keeping up with their rent payments,” the Fed reported. “Seventeen percent of renters were behind on their rent at some point in the prior year.”
At the end of 2022, the median U.S. rent was $2,305, up nearly 5 percent from the previous year.
The growing cost of living kept many renters sitting on the sidelines as the median sales price of homes sold in the United States reached a record high of $480,000.
On the labor front, the numbers revealed a robust employment arena. One-third of adults received a raise or a promotion, and 70 percent who asked for a raise were given one.
Real wage growth (inflation-adjusted) was negative throughout 2022, according to the Bureau of Labor Statistics (BLS).
Will 2023 Be Better?
While the annual inflation rate has slowed to below 5 percent in April, a wide range of reports suggest that Americans continue to be pessimistic about current economic conditions.
According to a new Gallup poll, 61 percent of respondents said inflation has caused financial hardship to their households. Moreover, 35 percent rate inflation as the most important financial problem facing their family today, followed by owning a home (11 percent), too much debt (9 percent), and a lack of money or low wages (7 percent).
“Even as inflation has been cooling, the effect of continued high prices has broadened the financial pain Americans are feeling,” the polling firm stated.
The latest CNBC All-America Economic Survey found that a record 69 percent of U.S. adults held negative views about the present and future economy amid sticky inflation, recession fears, and higher borrowing costs.
Nearly 40 percent say their finances are worse off than a year ago, according to the New York Fed’s Survey of Consumer Expectations (SCE). Looking ahead to one year from now, inflation expectations stand at 4.4 percent.
Likewise, a new survey by the National Association for Business Economics (NABE) reported that 98 percent of business forecasts expect inflation will remain above the central bank’s 2 percent target rate.
The March Survey of Economic Projections (SEP) suggested that the Fed’s preferred inflation gauge—the personal consumption expenditures (PCE) price index—will ease to 3.3 percent in 2023 and 2.5 percent in 2024.
Economists say the PCE is more accurate than the CPI because the former is broader and includes expenditures by urban and rural consumers, employers, and non-profit organizations. The PCE is also regularly adjusted to reflect current purchases and substitutions.
But while Fed Chair Jerome Powell blamed negative supply shocks (energy and non-energy commodities and labor) for inflation during the May 19 Perspectives on Monetary Policy panel discussion at the Thomas Laubach Research Conference, some U.S. lawmakers say the central bank played an integral role in lifting inflation to its highest level in 40 years.
“The kind of the monetary policies put forward by the Fed is one of the key drivers of inflation that we’re seeing,” Rep. Bryan Steil (R-Wisc.) told The Epoch Times.