Americans are tired with the economy — and $100,000 earners are driving the pessimism

Perhaps it’s unsurprising that the most ferocious inflation in decades is undermining many Americans’ faith in the economy. What’s more alarming is which group faces the worst prospects: higher-income households.

According to the carefully followed University of Michigan Consumer Surveys, consumer sentiment fell to a decade-low in February, with the decrease concentrated almost exclusively among those earning at least $100,000.

The university reported that sentiment in that category fell about 13%, highlighting concerns among higher-income Americans about increasing interest rates and the impact of inflation on their budgets.

In February, consumer sentiment decreased to 62.8 points, down from 76.8 points a year earlier.

Rising costs in the United States affect all Americans. Still, lower-income households have less budget flexibility to deal with the rising cost of basic products ranging from fuel to food.

However, upper-income families may be more aware of inflation’s impact since they have not had the same income rises as lower-income employees in recent years, which means their “real earnings” — or wages after inflation is taken into account — are dropping.

The stock market upheaval also impacts higher-income individuals’ retirement funds and assets, adding to their concern. Only around 4 in 10 low-wage earners have access to retirement plans, compared to 8 in 10 high-wage earners.

Rising inflation fears might hamper economic development, as “an optimistic consumer is more comfortable buying and borrowing,” according to Charlie Wise, senior vice president of research and consulting at TransUnion, which has been tracking consumer behavior during the epidemic. “And a pessimistic [customer] is more inclined to withdraw,” he continued.

Concerns about inflation

According to TransUnion’s latest Consumer Pulse report issued on Wednesday, Americans’ primary economic concern at the moment is inflation. However, the survey discovered that higher-income customers are more concerned than lower-income Americans.

The survey discovered that over 66 percent of consumers earning more than $100,000 were concerned about inflation, compared to 61 percent of those earning less than $50,000.

(Because the polling was conducted before Russia invaded Ukraine, the survey did not account for the anticipated inflationary impact on gas prices and other consumer products.)

“Lower-income consumers express less anxiety, but the issue is how much of it is due to a lack of awareness of inflation,” Wise added. “There is a correlation between financial fluency and income.”

However, demand for low-wage employees grows, driving their earnings far higher than white-collar professionals.

According to the most current official data, average hourly earnings for leisure and hospitality workers – waiters, hotel employees, and the like — increased 13% in January from a year earlier. This kept their earnings considerably ahead of inflation, which increased by 7.5 percent during the same time.

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Meanwhile, financial industry employees, such as bankers and real estate salespeople, had their pay increase by 4.8 percent during the same time. Consequently, these employees’ salaries and purchasing power have been eroded by inflation.

President Biden’s popularity ratings

This has an increasingly negative effect on people’s perceptions of President Joe Biden, whose support ratings on inflation and the economy have dipped in recent CBS polls. The study revealed that around six in ten Americans believe the economy is in terrible health.

However, the nation is reviving by many economic metrics – its unemployment rate was 4% in January, close to its pre-pandemic level. Wages are increasing, with most economists forecasting an increase of at least 3%.

“What’s coming out is inflation – that’s the focus,” TransUnion’s Wise explained. “There are relatively few folks who do not purchase food or petrol. It’s inescapable, and the data bear this out.”

Mr. Biden recognized in Tuesday’s State of the Union speech that inflation is eroding household income. He pledged to rein down soaring expenses, stating that “my primary objective is to get pricing under control.”

He detailed a series of steps, including strengthening competition among domestic suppliers of goods and pushing down on corporations that he claimed were overcharging customers.

On the other hand, consumers are unlikely to get respite anytime soon, with experts predicting that inflation will continue to elevate at least through the first half of 2022.

“A few of potholes in the road”

Winnie Hewett, a 68-year-old retiree from Mission Viejo, California, who considers her family as upper middle class, is one of many feeling the pinch of inflation.

She added that her gas price has more than quadrupled in the last year, and rental vehicle fees have risen to $1,200 per month from $800 when she visits her mother in North Carolina.

Hewett stated that she had reallocated some expenditure, particularly now that her younger kid is in college, which has resulted in a decrease in her daily shopping costs.

She said that she does not blame Mr. Biden for inflation, which she believes results from a combination of supply-chain disruptions and the infusion of federal stimulus money, which improved household budgets and increased demand for products.

“That inflation was inevitable regardless of who was in charge,” Hewett added.

She’s also seen the value of some of her retirement assets fall, and she anticipates that Russia’s invasion of Ukraine will exacerbate market volatility.

“I’m sure there are a few potholes ahead of us,” Hewett said, adding that she is optimistic that inflation and other concerns will improve over the year. “When you live long enough, you witness both foreign and domestic ups and downs. I think that we will recover.”