THE ECONOMIST: Feeling the pinch!

Since 2013, the Federal Reserve has conducted an annual Survey of Household Economics and Decisionmaking (SHED), which seeks to measure the economic wellbeing of US households. In October 2022, 11,000 adults across the country were asked a variety of questions about their financial situations. Let’s examine some of the most telling results.

It probably comes as no surprise that perceived financial wellbeing declined in 2022. In fact, 35% of those surveyed indicated they were doing worse than a year prior. That’s substantially higher than before, with 38% of White, 33% of Hispanic, 24% of Asian, and 22% of Black respondents saying their economic situation had declined.

With the significant price increases over the past couple of years (which were peaking when the survey was taken), budgets of most families have been hit hard, as reflected in a notable five percentage point drop from 78% to 73% of adults who said they were doing okay or living comfortably financially.

The proportion doing at least okay had been stable for several years at around 75% before spiking in 2021 during the heart of pandemic stimulus payments (78%). The 2022 reading, however, is the lowest since 2016. Education is an obvious factor, with 88% of those with at least a bachelor’s degree doing okay compared to only 49% of adults without a high school diploma. On a different note, a larger group received (and asked for) raises and bonuses (a reflection of the tight labor market).

Rising prices were a concern of most respondents irrespective of income level. Some stated that, while they received pay increases, it wasn’t sufficient to keep pace. The percentage of people who said they could cover a $400 emergency with cash or an equivalent dropped to 63%, and 18% said they couldn’t handle even a $100 expense, indicating growing vulnerability.

People are taking myriad actions to cope with rising prices. Some are using smaller quantities of products or switching to cheaper alternatives, while others are delaying major purchases. More than half dipped into savings, and many reported carrying higher credit card balances. A full 28% skipped medical treatments due to cost, a decision that can have long-term consequences on multiple fronts.

High inflation has wreaked havoc on family finances. Although the rate of increase is slowing (wholesale costs are now rising at a 2.3% annual pace), prices of many goods and services remain elevated. The Federal Reserve’s actions to deal with inflation are causing fallout in a variety of industries, but it’s clear that the damage to American families from elevated prices has been very real. The challenge remains doing enough to manage price increases without excessive harm to the economy. Stay tuned – and stay safe!